Welcome Corporation produces metal telephone poles. In the most recent month, th

Question

Welcome Corporation produces metal telephone poles. In the most recent month, the company budgeted production of 4,100 poles. Actual production was 4,400 poles. According to standards, each pole requires 7.0 machine-hours. The actual machine-hours for the month were 31,140 machine-hours. The standard variable manufacturing overhead rate is $2.50 per machine-hour. The actual variable manufacturing overhead cost for the month was $83,787. The variable overhead efficiency variance is: Multiple Choice $6,787 F $6,787 U $850 F $850 U

Explanation / Answer

The  variable overhead efficiency variance = ( Actual Hours * Standard Rate ) - ( Standard Hours * Standard Rate)

= ( 31,140 * $ 2.50) * ( 4,400 Poles * 7 Machine Hours *$ 2.50)

= $ 77,850- $77,000

= $ 850 U

Hence the correct answer is $ 850 U

Note Since the Actual is more than the standard cost hence, the variance is unfavorable.

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