Math Problem Statement

The Maxit Corporation has a standard costing system in which variable manufacturing overhead is assigned to production on the basis of standard machine-hours. The following data are available for July:

Actual variable manufacturing overhead cost incurred: $25,480

Actual machine-hours worked: 2,900 hours

Variable overhead rate variance: $5,370 U

Total variable overhead spending variance: $7,480 U

The variable overhead efficiency variance for July is:

Multiple Choice

$2,110 U

$12,850 U

$12,850 F

$2,110 F

Solution

To calculate the Variable Overhead Efficiency Variance, we can use the following formula:

Variable Overhead Efficiency Variance=Standard Rate×(Actual HoursStandard Hours Allowed)\text{Variable Overhead Efficiency Variance} = \text{Standard Rate} \times (\text{Actual Hours} - \text{Standard Hours Allowed})

We are given:

  1. Actual variable overhead cost incurred: $25,480
  2. Actual machine-hours worked: 2,900 hours
  3. Variable overhead rate variance: $5,370 U (Unfavorable)
  4. Total variable overhead spending variance: $7,480 U (Unfavorable)

The Rate Variance is given as $5,370 U. This relates to the difference between the Actual Rate and the Standard Rate.

The Spending Variance combines both the Rate and Efficiency Variances: Spending Variance=Rate Variance+Efficiency Variance\text{Spending Variance} = \text{Rate Variance} + \text{Efficiency Variance} Substituting: 7,480U=5,370U+Efficiency Variance7,480 \, U = 5,370 \, U + \text{Efficiency Variance}

Solve for the Efficiency Variance: Efficiency Variance=7,480U5,370U=2,110U\text{Efficiency Variance} = 7,480 \, U - 5,370 \, U = 2,110 \, U

Final Answer:

The Variable Overhead Efficiency Variance is: 2,110Unfavorable (U)\boxed{2,110 \, \text{Unfavorable (U)}}

If you have further questions or want a detailed breakdown of how this connects to the cost system, let me know!


Related Questions:

  1. How is the variable overhead rate variance calculated?
  2. Why is the efficiency variance unfavorable in this case?
  3. How would changes in standard machine-hours affect these variances?
  4. What is the impact of an unfavorable efficiency variance on overall production costs?
  5. Can the spending variance ever be favorable if the efficiency variance is unfavorable?

Tip:

Always isolate the variances carefully to understand their cause—Rate Variance is driven by cost per hour, while Efficiency Variance is tied to time usage.

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Math Problem Analysis

Mathematical Concepts

Cost Accounting
Variance Analysis
Algebra

Formulas

Efficiency Variance = Standard Rate × (Actual Hours - Standard Hours Allowed)
Spending Variance = Rate Variance + Efficiency Variance

Theorems

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Suitable Grade Level

Undergraduate (Accounting or Business Studies)