Andover Systems has a standard variable overhead rate of $5.60 per machine hour, and each unit produced has a standard time allowed of 2.50 hours. The company's static budget was based on 46,000 units. Actual results for the year follow.

Actual units produced: 47,000
Actual machine hours worked: 110,000
Actual variable overhead incurred: $590,000

Andover's variable-overhead efficiency variance is:

Andover's variable-overhead efficiency variance is $-42,000 Unfavourable

Explanation:

According to the given data we have the following:

Standard overhead rate=$ 5.60 per hour    

Actual Hours=110,000 hours    

Standard hours=47,000 units x 2.5 hours per unit    

=117,500 hours

Therefore, in order to calculate the Andover's variable-overhead efficiency variance we would have to use the following formula:

Variable Overhead efficiency variance=Standard overhead rate x (Actual hours - standard hours)

=$ 5.60 x (110,000 - 117,500)    

=$-42,000  Unfavourable

42,000 Favorable

Explanation:

Actual units produced: 47,000 × Standard time allowed of 2.50 hours=117,500

117,500-Actual machine hours worked: 110,000= 7,500

Hence;

7,500×$5.60

=42,000 Favorable

Therefore Andover's variable-overhead efficiency variance is: 42,000 which is Favorable

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