Question

Xcel Technologies, Inc. applies variable manufacturing overhead to products based on machine hours. The standard variable overhead rate is $5 per machine hour. The standard time allowed for producing one unit is 2 machine hours. During the month of August, the company produced 500 units. It incurred actual variable costs of $5,655 and used 870 machine hours. Calculate the variable overhead efficiency variance for the month of August.

A) $650 favorable

B) $650 unfavorable

C) $845 favorable

D) $845 unfavorable

Answer 1

Budgetted hour per unit	2
Budgetted rate per hour	5
Actual unit produced	500
Actual hours	870
Actual cost	5,655

Variable overhead efficiency = (actual labor hours less budgeted labor hours) x hourly rate for standard variable overhead

= (870-500*2)*5 = 650 Favorable

In this case, the company has taken less hours than budgetted for actual units produced leading to Favorable efficiency