The Chilton Corporation specializes in manufacturing one type of desk lamp. Chilton allocates variable manufacturing overhead costs on the basis of machine hours. Chilton budgeted 0.3 machine hours per lamp and allocates overhead at a rate of $1.70 per machine hour. Last year Chilton manufactured 23,000 lamps, used 9200 machine hours and incurred actual overhead costs of $10,120. What was Chilton's variable manufacturing overhead efficiency variance last year?

variable overhead efficiency variance = $3,910 unfavorable

Explanation:

Giving the following information:

Chilton allocates variable manufacturing overhead costs based on machine hours. Chilton budgeted 0.3 machine hours per lamp and allocates overhead at a rate of $1.70 per machine hour. Last year Chilton manufactured 23,000 lamps, used 9200 machine hours and incurred actual overhead costs of $10,120.

variable overhead efficiency variance = (SQ - AQ) * SR

variable overhead efficiency variance = (23,000*0.3 - 9,200) * 1.7 = $3,910 unfavorable

The answer is 3,910 unfavorable.

Explanation:

We have the variable manufacturing overhead efficiency variance = (Standard overhead rate x (Actual hours - Standard hours).

in which:

Actual hour is given at 9,200 hours;

Standard hours = Actual lamps manufactured * Standard hour rate per lamp manufactured = 23,000 * 0.3 = 6,900 hours;

Standard overhead = $1.70 per machine hour.

=>Variable manufacturing overhead efficiency variance = 1.70 x (9,200 - 6,900) = $3,910 unfavorable (because actual incurred cost is higher than standard cost).

So, the answer is 3,910 unfavorable.