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ACCA Applied Knowledge · Management Accounting · Reconciliation of budgeted and actual profit

Standard variable overhead is $4 per labour hour, with 2 hours allowed per unit. In a period, 1,500 units were produced using 3,100 hours (all hours worked were paid) and actual variable overhead cost was $12,800. What is the variable overhead efficiency variance?

The variable overhead efficiency variance is $400 adverse. Producing 1,500 units should take 3,000 hours at 2 hours each, but 3,100 hours were used. The 100 excess hours multiplied by the $4 standard variable overhead rate give $400 adverse.

  1. A$400 adverseCorrect
  2. B$400 favourable
  3. C$1,000 adverse
  4. D$600 adverse

Explanation

Standard hours for actual output = 1,500 x 2 = 3,000. Actual hours were 3,100, so 100 hours excess x $4 = $400 adverse. The expenditure variance is separate: 3,100 x $4 = $12,400 versus actual $12,800 gives $400 adverse as well, so the total is $800 adverse; $1,000 and $600 do not follow from the data.

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