Shawl Corporation's variable overhead is applied on the basis of direct labor-hours. The standard cost card for product F02E specifies 5.5 direct labor-hours per unit of F02E. The standard variable overhead rate is $6.80 per direct labor-hour. During the most recent month, 1,560 units of product F02E were made, and 8,700 direct labor-hours were worked.

The actual variable overhead incurred was $52,635.

Required:

a. What was the variable overhead rate variance for the month?

b. What was the variable overhead efficiency variance for the month?

(a) $6,525 (b) $816

Explanation:

Solution

Given that:

(a) The variable overhead rate variance for the month:

The variable overhead rate variance = (Actual rate - Standard rate) * Actual hours

= (($52,635/8700) - $6.80) * 8,700 hours

= ($6.05-$6.80) * 8,700 hours

= $6,525 Favorable

(b) The variable overhead efficiency variance for the month:

The variable overhead efficiency variance = (Actual hours - Standard hours) * Standard rate

= (8,700 Hours - (1,560 units * 5.5 Hours/Unit)) * $ 6.80

= (8,700 Hours - 8,580 Hours) * $6.80

= $816 Which is unfavorable