Diekow Productions manufactured and sold 1,000 products at $11,000 each during t

Question

Diekow Productions manufactured and sold 1,000 products at $11,000 each during the past year. At the beginning of the year, production had been set at 1,200 products; direct materials standards had been set at 100 pounds of direct materials at $2 per pound for each product produced. During the year, the company purchased and used 98,000 pounds of direct materials; the cost was $2.04 per pound.

At the beginning of last year, Diekow Productions set variable overhead standards of 10 machine hours at a rate of $10 per hour for each product produced. During the year, 10,800 machine hours were used at a cost of $10.20 per hour.

Calculate Diekow Production's variable overhead spending and efficiency variances for the year.

Variable overhead spending variance: $__________ (Favorable / Unfavorable / No effect)

Variable overhead efficiency variance: $__________ (Favorable / Unfavorable / No effect)

Explanation / Answer

actual hours = 10,800 actual rate = 10.20 standard hours = 1,000*10 = 10,000 standard rate = 10 variable overhead spending variance = actual hours*actual rate - actual hours*standard rate = 10,800*10.2 - 10,800*10 = 2160, which is 2,160 unfavorable variable ovehead efficiency variance = acual hours*standard rate - standard hours*standard rate = 10,800*10 - 10,000*10 = 8,000 which is 8,000 unfavorable

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