The following standards for variable overhead have been established for a company that makes only one product: Standard hours per unit of output 6.8 hours
Standard variable overhead rate $14.00 per hour

The following data pertain to operations for the last month:

Actual hours 9,500 hours
Actual total variable overhead cost $125,230
Actual output 1,390 units

Required:
a. What is the variable overhead rate variance for the month?
b. What is the variable overhead efficiency variance for the month?

a. The variable overhead rate variance for the month is:

=  $7,771 F

b. The variable overhead efficiency variance for the month is:

= $672 U.

Explanation:

a) Data and Calculations:

Standard hours per unit of output = 6.8 hours

Standard variable overhead rate = $14.00 per hour

Total standard hours = 9,452 (6.8 * 1,390)

Actual hours = 9,500 hours

Actual total variable overhead cost = $125,230

Actual rate per hour = $13.18 ($125,230/$9,500)

Actual output = 1,390 units

Variable overhead rate variance for the month = (Standard rate - Actual rate) * Actual hours = $14 - $13.182 * 9,500 = $7,771 F

Variable overhead efficiency variance for the month = (Standard hours - Actual hours) * Standard Rate

= 9,452 - 9,500 * $14 = $672 U

Total variable overhead variance for the month = $7,099 F ($7,771 - $672)

Total standard variable overhead cost = 6.8 * $14 * 1,390 = $132,328

Actual variable overhead cost for the month =                       125,230

Variance for variable overhead cost for the month =              $7,098

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