Oddo Corporation makes a product with the following standard costs: The company

Question

Oddo Corporation makes a product with the following standard costs:

The company reported the following results concerning this product in December.

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 December is:

$1,100 U

$1,122 F

$1,122 U

$1,100 F

Standard Quantity or Hours Standard Price or Rate Standard Cost Per Unit Direct materials 3.0 ounces $7.00 per ounce $21.00 Direct labor 0.7 hours $20.00 per hour $14.00 Variable overhead 0.7 hours $5.00 per hour $3.50

Explanation / Answer

Answer : 1100 U

Working notes for the above answer is as under

The variable overhead efficiency variance is the difference between the actual and budgeted hours worked, which are then applied to the standard variable overhead rate per hour. The formula is:

Standard overhead rate x (Actual hours - standard hours)
= Variable overhead efficiency variance

Now we will calculate the variable overhead efficiency variance for December is:

Standard overhead rate x (Actual hours - standard hours)
= Variable overhead efficiency variance

= 5 * (2940-3160)

=5*-220

=-1100

= 1100 U

Standered Rate 5 Actual Hour 3160 Standered Hour
(4200*0.7) 2940

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