Bulluck Corporation makes a product with the following standard costs: Standard Quantity or Hours Standard Price or Rate Direct materials 3.90 grams $ 1.40 per gram Direct labor 0.40 hours $ 15.00 per hour Variable overhead 0.40 hours $ 2.40 per hour The company reported the following results concerning this product in July. Actual output 3,400 units Raw materials used in production 11,770 grams Actual direct labor-hours 1,190 hours Purchases of raw materials 12,500 grams Actual price of raw materials purchased $ 1.60 per gram Actual direct labor rate $ 11.80 per hour Actual variable overhead rate $ 2.50 per hour The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased. The variable overhead efficiency variance for July is:

Variable overhead efficiency variance = $408 Favorable

Explanation:

Variable overhead efficiency variance: Variable overhead efficiency variance aims to determine whether or not their exist savings or extra cost incurred on variable overhead as a result of workers being faster or slower that expected.

Since the variable overhead is charged using labour hours, any amount by which the actual labour hours differ from the standard allowable hours would result in a variance  

                                                                                        Hours

3,400 units should have taken (3,400×0.4 hours)   1,360

but did take                                                                 1,190

Labour hours variance                                                170 favorable

Standard variable overhead rate ×                            $ 2.40 per hour

Variable overhead efficiency variance                     $408Favorable

Variable overhead efficiency variance = $408 Favorable

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