Question

Doogan Corporation makes a product with the following standard costs:

	Standard Quantity or Hours			Standard Price or Rate
Direct materials		7.4	grams	$	2.00	per gram
Direct labor		0.5	hours	$	20.00	per hour
Variable overhead		0.5	hours	$	7.00	per hour

The company produced 5,200 units in January using 39,310 grams of direct material and 2,380 direct labor-hours. During the month, the company purchased 44,400 grams of the direct material at $1.70 per gram. The actual direct labor rate was $19.30 per hour and the actual variable overhead rate was $6.80 per hour.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased.

The variable overhead efficiency variance for January is:

A:$1,496 F

B:$1,496 U

C:$1,540 U

D:$1,540 F

Answer 1

Option D:$1,540 F is the correct answer

Explanation:

Computation of variable overhead efficiency variance is as fllows:

Variable Overhead Efficiency Variance = (Standard hours for actual production-Actual hours)*Standard Rate

Standard hours for actual production	A = 5,200 units*0.50 Hours	2,600
Actual hours worked	B	2,380
Standard rate per hour	C	$7.00
Variable Overhead Efficiency Variance	(A-B)*C	$1,540	i.e. Favorable