BackFill Systems allocates manufacturing overhead based on machine hours. Each connector should require 13 machine hours. According to the static budget, BackFill expected to incur the following:

1,300 machine hours per month (100 connectors * 13 machine hours per connector)

$6500 in variable manufacturing overhead costs

$5550 in fixed manufacturing overhead costs

During August, BackFill actually used 400 machine hours to make 85 connectors and spent $5,500 in variable manufacturing costs and $8800 in fixed manufacturing overhead costs. Calculate the variable overhead efficiency variance for BackFill.

a. $3,525 F

b. $3,500 U

c. $25 F

d. $7,025 F

a) $3,525 F

Explanation:

Overheads cost is the addition of the indirect material cost, indirect labour cost and indirect expenses. Overhead that changes with the level of activity are called variable overhead costs, example includes cost fueling machines in factory.

Variable overhead efficiency variance: A variance is the difference between a standard cost and the actual cost. Variable overhead effeciency variance aims to determine the savings or extra cost incurred on variable overhead as a result of workers being faster or slower that expeceted.

To calculate this variance, we do as follows:

Hours

85 connectors should have taken (85 * 13) 1,105

but did take (i. e actual hours) 400

Efficiency variance in hours 705 F

Standard variable overhead rate / hr (6500/1300) $5

Variable overhead efficiency variance $3,525 F

Note; The standard rate per hour = Budgeted Cost/Budgeted hours

= $6500 / 1,300 hours.

There were savings in the cost because the workers spent less time (400 hours) to produce the actual units of connectors thatn the expected hours given 1,105 hours.