4. E9-11 Calculating Variable Manufacturing Overhead Variances [LO 9-5] Lamp Lig

Question

4.

E9-11 Calculating Variable Manufacturing Overhead Variances [LO 9-5]

Lamp Light Limited (LLL) manufactures lampshades. It applies variable overhead on the basis of direct labor hours. Information from LLL’s standard cost card follows:

During August, LLL had the following actual results:

Required:
Compute LLL’s variable overhead rate variance, variable overhead efficiency variance, and over- or underapplied variable overhead. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for Favorable/Overapplied and "U" for Unfavorable/Underapplied.)

Explanation / Answer

Compute LLL’s variable overhead rate variance, variable overhead efficiency variance, and over- or underapplied variable overhead

Variable overhead rate variance = (0.80*15800-9470) = 3170 F

Variable overhead efficiency variance = (24800*.6-15800)0.80 =736 U

Over applied overhead = 3170 F-736 U = 2434 U

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