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Variable Overhead Variances - Cost Accounting

  1. What was the total actual variable overhead cost for the period?
    Answer: $204,000 This can be solved using just the spending variance information. The formula is: Spending Variance = Actual VOH - (Standard Rate × Actual Hours). Plugging in the values: $4,000 = Actual VOH - ($20 × 10,000). $4,000 = Actual VOH - $200,000. Solving for Actual VOH: Actual VOH = $200,000 + $4,000 = $204,000.
  2. What was the purchasing department's variable overhead efficiency variance for the quarter?
    Answer: $280 Unfavorable The allocation base is purchase orders. First, calculate the standard number of purchase orders (SH) allowed: $640,000 materials / $5,000 per order = 128 standard orders. The actual number of orders (AH) was 135. The standard rate (SR) is $40 per order. The efficiency variance is (AH - SH) × SR = (135 - 128) × $40 = 7 × $40 = $280. Since more orders were processed than standard, the variance is unfavorable.
  3. What is the variable overhead efficiency variance?
    Answer: $18 Unfavorable First, determine total standard hours allowed. The company produced 5 batches, so SH = 5 batches × 4.0 MH/batch = 20 MH. Next, determine total actual hours worked. This includes both run time and setup time: AH = 18 hours + 3 hours = 21 MH. Finally, calculate the efficiency variance: (Actual Hours - Standard Hours) × Standard Rate = (21 MH - 20 MH) × $18/MH = 1 MH × $18 = $18. Because actual hours exceeded standard hours, the variance is unfavorable.
  4. Based on this information, what is the standard variable overhead rate per machine hour?
    Answer: $8.42 The spending variance formula is: Actual VOH - (Standard Rate × Actual Hours). We can rearrange this to solve for the Standard Rate (SR). $2,600 = $43,000 - (SR × 4,800 hours). Rearranging: (SR × 4,800) = $43,000 - $2,600. (SR × 4,800) = $40,400. SR = $40,400 / 4,800 hours = $8.4166... or approximately $8.42.
  5. A company reported a significant unfavorable variable overhead efficiency variance for the period. Its variable overhead spending variance was slightly favorable. Which of the following is the most plausible explanation for this combination of variances?
    Answer: The company used a higher proportion of newly hired, less-skilled workers on the production line. An unfavorable efficiency variance means that more of the allocation base (e.g., labor hours, machine hours) was used than standard for the output achieved. Less-skilled workers are likely to take longer to complete tasks, increasing actual hours and causing an unfavorable efficiency variance. The favorable spending variance is a secondary effect and could be coincidental or related (e.g., these workers use supplies more carefully), but the primary driver of the efficiency variance is the use of more hours. Choice A only explains the spending variance. Choice B would cause an unfavorable spending variance. Choice D affects the volume variance in a fixed overhead context but does not directly explain the VOH efficiency variance.
  6. What is the total variable overhead efficiency variance for the company for the month?
    Answer: $360 Unfavorable To find the total variance, we must compare total actual hours to total standard hours allowed. First, calculate total standard hours: (500 units Alpha × 2.0 MH/unit) + (300 units Beta × 3.0 MH/unit) = 1,000 MH + 900 MH = 1,900 standard hours. Next, find total actual hours: 1,050 MH + 880 MH = 1,930 actual hours. Now, calculate the variance: (1,930 AH - 1,900 SH) × $12/MH = 30 hours × $12 = $360. Since actual hours are greater than standard hours, the variance is unfavorable.
  7. What is the variable overhead spending variance for June?
    Answer: $1,050 Favorable The variable overhead spending variance is calculated as Actual VOH Cost - (Standard Rate × Actual Hours). The formula is: $60,750 - ($6.00/hour × 10,300 hours) = $60,750 - $61,800 = -$1,050. A negative result indicates a favorable variance because the actual cost was less than what would be expected for the actual hours worked.
  8. What is the variable overhead efficiency variance for April?
    Answer: $2,000 Unfavorable The variable overhead efficiency variance is based on the allocation base, which is machine hours. First, calculate the standard machine hours allowed for actual production: 10,000 units × 1.5 MH/unit = 15,000 MH. The formula is (Actual Hours - Standard Hours Allowed) × Standard Rate. Calculation: (15,500 MH - 15,000 MH) × $4.00/MH = 500 MH × $4.00/MH = $2,000. Since actual hours exceeded standard hours, the variance is unfavorable.
  9. What is the standard number of direct labor hours allowed per unit of output?
    Answer: 2.00 hours This requires working backward from the efficiency variance. The formula is (AH - SH) × SR = Efficiency Variance. Plugging in the known values: (10,400 - SH) × $10.00 = $4,000. Divide both sides by $10: 10,400 - SH = 400. Solve for total standard hours (SH): SH = 10,400 - 400 = 10,000 hours. To find the standard hours per unit, divide total standard hours by the number of units produced: 10,000 hours / 5,000 units = 2.00 hours per unit.
  10. What is the variable overhead efficiency variance for the period?
    Answer: $6,000 Unfavorable The variable overhead efficiency variance formula is (Actual Hours - Standard Hours Allowed) × Standard Rate. First, determine the standard hours allowed for actual production: 10,000 units × 0.8 hours/unit = 8,000 standard hours. Then, apply the formula: (8,300 actual hours - 8,000 standard hours) × $20.00 standard rate = 300 hours × $20.00 = $6,000. Since actual hours exceeded standard hours, the variance is unfavorable. The actual rate of $19.50 is only used for the spending variance.
  11. Pacific Industries uses machine hours to allocate variable overhead and has established a standard rate of $25 per machine hour. During September, the variable overhead spending variance was $8,000 unfavorable and the efficiency variance was $5,000 favorable. If 3,200 machine hours were actually used during the month, what was the standard quantity of machine hours allowed for the actual level of production achieved?
    Answer: 3,400 machine hours Using the efficiency variance formula: Efficiency variance = (Actual hours - Standard hours) × Standard rate. Given: $5,000 F = (3,200 - Standard hours) × $25. Since the variance is favorable, actual hours were less than standard hours: $5,000 = (Standard hours - 3,200) × $25. Solving: $5,000 ÷ $25 = Standard hours - 3,200, so 200 = Standard hours - 3,200, therefore Standard hours = 3,400.
  12. If 10,000 standard machine hours were allowed for the year's production, what was the total actual variable overhead cost?
    Answer: $249,500 The total variance formula is: Total Variance = Actual VOH - (Standard Hours × Standard Rate). We are given all values except Actual VOH. Let's plug them in, with Favorable as negative and Unfavorable as positive: -$500 = Actual VOH - (10,000 hours × $25/hour). -$500 = Actual VOH - $250,000. Rearranging to solve for Actual VOH: Actual VOH = $250,000 - $500 = $249,500.
  13. A company's total variable overhead variance was $1,500 unfavorable. The variable overhead spending variance was calculated to be $4,200 unfavorable. What was the company's variable overhead efficiency variance?
    Answer: $2,700 Favorable The total variable overhead variance is the sum of the spending and efficiency variances. Let U be a positive number and F be a negative number. The equation is: Total Variance = Spending Variance + Efficiency Variance. So, +$1,500 = +$4,200 + Efficiency Variance. Solving for the efficiency variance: Efficiency Variance = $1,500 - $4,200 = -$2,700. A negative result indicates a favorable variance.
  14. What is the variable overhead spending variance for March?
    Answer: $900 Favorable The spending variance calculation ignores information about units produced, work-in-process, and fixed overhead. The formula is: Actual VOH - (Standard Rate × Actual Hours). Calculation: $36,000 - ($3.00 × 12,300) = $36,000 - $36,900 = -$900. A negative result indicates a favorable variance.
  15. Pioneer Co. has a standard variable overhead rate of $8.00 per machine hour. For a recent production run of 1,000 units, the company used 2,100 machine hours. The company's controller determined that the actual variable overhead rate was 5% higher than the standard rate. What was the variable overhead spending variance for this production run?
    Answer: $840 Unfavorable First, calculate the actual variable overhead rate: $8.00 × 1.05 = $8.40 per machine hour. The spending variance formula is (Actual Rate - Standard Rate) × Actual Hours. So, ($8.40 - $8.00) × 2,100 machine hours = $0.40 × 2,100 = $840. Since the actual rate was higher than the standard rate, the variance is unfavorable.
  16. Actual machine hours for the month totaled 4,300, and the standard variable overhead rate is $24.00 per machine hour. What is the variable overhead efficiency variance for the month?
    Answer: $7,200 Unfavorable The variable overhead efficiency variance is calculated as (Actual Hours - Standard Hours Allowed) × Standard Rate. First, calculate the standard hours allowed for the actual output: 8,000 units × 0.5 machine hours/unit = 4,000 standard hours. Then, apply the formula: (4,300 actual hours - 4,000 standard hours) × $24.00/hour = 300 hours × $24.00/hour = $7,200. Since actual hours exceeded standard hours, the variance is unfavorable.
  17. Alpine Products has a standard variable overhead rate of $22 per machine hour. In March, the company incurred $95,700 in actual variable overhead costs and used 4,500 machine hours. The standard hours allowed for actual production were 4,200 hours. If management wants to analyze what portion of the total variance is due to using a different overhead rate than standard versus using more hours than standard, what are the spending and efficiency variances respectively?
    Answer: $3,300 favorable spending; $6,600 unfavorable efficiency Spending variance = Actual OH - (Actual hours × Standard rate) = $95,700 - (4,500 × $22) = $95,700 - $99,000 = $3,300 F. Efficiency variance = (Actual hours - Standard hours) × Standard rate = (4,500 - 4,200) × $22 = 300 × $22 = $6,600 U. The favorable spending variance indicates actual rates were lower than standard, while the unfavorable efficiency variance shows more hours were used than standard.
  18. What is the variable overhead spending variance for July?
    Answer: $780 Unfavorable The spending variance focuses on the cost per hour, comparing the actual total cost to what it should have been for the actual hours worked. The calculation is: Actual VOH Cost - (Standard Rate × Actual Hours) = $24,180 - ($7.50 × 3,120) = $24,180 - $23,400 = $780. Since the actual cost is higher, the variance is unfavorable.
  19. A company allocates variable manufacturing overhead based on direct labor hours. An unfavorable direct labor efficiency variance is recorded for the period. Assuming no other changes in production processes or costs, what is the most likely corresponding impact on the variable overhead variances?
    Answer: An unfavorable variable overhead efficiency variance. An unfavorable direct labor efficiency variance means that actual direct labor hours were greater than the standard hours allowed for the output. Since variable overhead is allocated based on direct labor hours, the overuse of labor hours (AH > SH for labor) will directly lead to an overuse of the allocation base for overhead. This results in an unfavorable variable overhead efficiency variance, which is calculated as (AH - SH) × SR.
  20. What is Orion's variable overhead efficiency variance for May?
    Answer: $1,000 Unfavorable The efficiency variance must be based on the standard hours allowed for the actual level of production, not the static budget. First, calculate standard hours allowed: 5,200 units produced × 3 hours/unit = 15,600 standard hours. Then, calculate the variance: (Actual Hours - Standard Hours Allowed) × Standard Rate = (15,800 - 15,600) × $5 = 200 hours × $5 = $1,000. Because actual hours were greater than standard hours, the variance is unfavorable.

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