Question

Lamp Light Limited (LLL) manufactures lampshades. It applies variable overhead on the basis of direct labor hours. Information from LLL’s standard cost card follows:

Standard Quantity

Standard Rate

Standard Unit Cost

Variable manufacturing overhead

0.6

$0.80

$0.48

During August, LLL had the following actual results:

Units produced and sold

25,200

Actual variable overhead

$

9,510

Actual direct labor hours

16,200

Required:

Compute LLL’s variable overhead rate variance, variable overhead efficiency variance, and over or underapplied variable overhead. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)




Variable Overhead Rate Variance

$

Variable Overhead Efficiency Variance

$

Variable Overhead Spending Variance

Answer 1

Variable Overhead Rate Variance $

• -$3,450 Favorable

Variable Overhead Efficiency Variance $

• $ 864 Unfavorable

Variable Overhead Spending Variance $

• -$3,402 Favorable

Step-by-step explanation:

Variable overhead rate variance = actual variable overhead - (actual direct hours x standard rate) = $9,510 - (16,200 x $0.80) = $9,510 - $12,960 = -$3,450 Favorable

Variable overhead efficiency variance = (actual labor hours - standard hours) x standard rate = (16,200 - 15,120) x $0.80 = 864 Unfavorable

Variable overhead spending variance = actual hours x (actual rate - standard rate) = 16,200 x ($0.59 - $0.80) = 16,200 x (-$0.21) = -$3,402 Favorable