Question

# Neptune Inc. uses a standard cost system and has the following information for the most recent...

Neptune Inc. uses a standard cost system and has the following information for the most recent month, April:

 Actual direct labor hours (DLHs) worked 17,000 Standard direct labor hours allowed for good output produced this period 18,000 Actual total factory overhead costs incurred \$45,400 Budgeted fixed factory overhead costs \$10,800 Denominator activity level, in direct labor hours (DLHs) 15,000 Total factory overhead application rate per standard direct labor hour \$2.70

The variable factory overhead efficiency variance for Neptune, Inc. in April was:

 \$940 unfavorable. \$1,040 favorable. \$1,980 favorable. \$2,160 favorable. \$3,200 favorable.

C. \$1,980 favorable

Variable OH efficiency variance = Std. VOH rate/DLH x (actual -standard allowed) DLHs

Budgeted FOH rate = Budgeted fixed overhead/denominator activity level = \$10,800/15,000 = \$.72/DLH

VOH rate = Total OH rate -FOH rate = \$2.70 (given) -\$.72 = \$1.98/DLH

Actual DLHs worked = 17,000 (given)

Standard allowed hours for this period's production = 18,000 (given)

Therefore, variable overhead efficiency variance = \$1.98/DLH x (17,000 - 18,000) DLHs = \$1,980 favorable