The following standards for variable overhead have been established for a company that makes only one product:
standard hours per unit of output 4.9 hours
standard variable overhead rate $15.00 per hour

the following data pertain to operations for the last month:
actual hours 8,600 hours
actual total variable overhead cost $125,040
actual output 1,740 units
what is the variable overhead rate variance and efficiency variance, and are they favorable or unfavorable?

The variable overhead rate variance and efficiency variance is $3,960 unfavorable and $1,110 favorable respectively.

Explanation:

The computation of the variable overhead rate variance and efficiency variance is shown below:

Variable overhead rate variance = Actual total variable overhead cost - (Actual hours × Standard variable overhead rate)

= $125,040 - (8,600 hours × $15)

= $125,040 - $129,000

= $3,960 unfavorable

(Actual hours × Standard variable overhead rate) = Standard total variable overhead cost

Variable overhead efficiency variance = Standard variable rate × (Actual hours - standard hours)

= $15 × ($8,600 - 4.9 hours × 1,740 units)

= $15 × ($8,600 - $8,526)

= $1,110 favorable

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