11. The Thompson Company uses standard costing and has established the following

Question

11. The Thompson Company uses standard costing and has established the following direct material and direct labor standards for each unit of Lept.

Direct materials: 2 gallons at $4 per gallon
Direct labor: 0.5 hours at $8 per hour

During September, the company made 6,000 Lepts and incurred the following costs:

Direct materials purchased: 13,400 gallons at $4.10 per gallon
Direct materials used: 12,600 gallons
Direct labor used: 2,800 hours at $7.65 per hour

11. What is the variable overhead efficiency variance for the month?

A. $7,161 U
B. $6,913 U
C. $3,192 U
D. $6,913 F

Explanation / Answer

None of the options given are correct.

Variable Overhead efficiency variance is calculated using the formula,

Standard Overhead rate *(Actual Hours – Standard Hours)

Standard Overhead rate is $8 per hour

Actual hours used were 2,800 hours.

Units made in September were 6,000

Standard hours required for 6,000 units will be 6,000 * 0.50 = 3,000 hours

Variable Overhead efficiency variance = $8 * (2,800 – 3,000) = $8 * 200 = $1,600 Favorable

As the actual hours were less than the standard hours it is favorable.

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