CIMA BA2 · Chapter 7 · Question 14 of 14
Variable production overheads are absorbed at $4 per labour hour worked, and the standard time is 2 labour hours per unit. In a period, employees were paid for 19,800 hours, but 600 of these hours were idle time because of a machine breakdown. Variable overheads are incurred only when labour is working. Actual output was 9,800 units. What is the variable overhead EFFICIENCY variance?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $1,600 favourable
Explanation
Hours actually worked = 19,800 - 600 = 19,200. Standard hours for actual output = 9,800 x 2 = 19,600. Variable overhead efficiency variance = (19,600 - 19,200) x $4 = $1,600 favourable, because the output took fewer hours than standard. Using hours paid (19,800) would wrongly give $800 adverse; idle hours carry no variable overhead, so they are excluded.
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