Question

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.

Answer 1

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