Lamp Light Limited (LLL) manufactures lampshades. It applies variable overhead o

Question

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: StandardStandard Standard QuantityRate Unit Cost $0.80 Variable 0.6 $0.48 overnead During August, LLL had the following actual results: Units produced and sold Actual variable overnead Actual direct labor hours 25,200 $ 9,510 16,200 Required: Compute LLL's variable overhead rate variance, variable overhead efficlency variance, and over- or underapplied variable overhead. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for FavorablelOverapplied and "U" for Unfavorable/Underapplied.) Variable Overhead Rate Variance Variable Overhead Efficiency Variance Variable Overhead Spending Variance

Explanation / Answer

Variable Overhead Rate Variance = AH *(SR – AR Variable Overhead Rate Variance = 16200 * (0.80 - 0.587 Variable Overhead Rate Variance = 3451 F Variable Overhead Efficiency Variance = SR * (SH – AH Variable Overhead Efficiency Variance = 0.8 *(15120 -16200 ) Variable Overhead Efficiency Variance = 864 U Variable overhead spending variance = variable overhead rate variance + efficiency variance variable overhead spending variance = 3451 F + 864 U = 2587 F *Actual rate = 9510/16200 = 0.587 *Standard hours = 25200 *0.6 = 15120

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