Question

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SHAH PUJAN NARESHBHAI KOKILABEN
Question 31 :
Which from the options below is not a variable overhead
variance!
Variable Overhead efficiency Variance​

Answer 1

Answer:

Variable overhead efficiency variance refers to the difference between the true time it takes to manufacture a product and the time budgeted for it, as well as the impact of that difference. It arises from variance in productive efficiency.

For example, the number of labor hours taken to manufacture a certain amount of product may differ significantly from the standard or budgeted number of hours. Variable overhead efficiency variance is one of the two components of total variable overhead variance, the other being variable overhead spending variance.

Explanation:

In numerical terms, variable overhead efficiency variance is defined as:

\begin{aligned} &\text{VOEV} = ( \text{ALH} - \text{BLH} ) \times \text{Hourly Rate} \\ &\textbf{where:} \\ &\text{VOEV} = \text{Variable overhead efficiency variance} \\ &\text{ALH} = \text{Actual labor hours} \\ &\text{BLH} = \text{Budgeted labor hours} \\ &\text{Hourly Rate} = \text{Rate for standard variable overhead} \\ \end{aligned}

VOEV=(ALH−BLH)×Hourly Rate

where:

VOEV=Variable overhead efficiency variance

ALH=Actual labor hours

BLH=Budgeted labor hours

Hourly Rate=Rate for standard variable overhead

The hourly rate in this formula includes such indirect labor costs as shop foreman and security. If actual labor hours are less than the budgeted or standard amount, the variable overhead efficiency variance is favorable; if actual labor hours are more than the budgeted or standard amount, the variance is unfavorable.Consider an example of a widget-manufacturing plant, where the rate for standard variable overhead to account for indirect labor costs is estimated at $20 per hour. Assume that the standard number of hours required to manufacture 1,000 widgets is 2,000 hours. However, the company actually took 2,200 hours to manufacture 1,000 widgets. In this case, the unfavorable variable overhead efficiency variance is (2,200 – 2,000) x $20 = $4,000; the variance is unfavorable because the company took more time than budgeted to produce the 1,000 widgets. If the company had instead taken 1,900 hours to manufacture 1,000 widgets, the variance would be favorable $2,000.