Variable Manufacturing Overhead Rate Variance Accounting Need Help

Question

Luis Corporation uses a standard cost system in which it applies manufacturing overhead to products on basis of machine hours (MH's). The company's standard requires 4 Machine Hours for each unit produced. Luis budgets to produce 1,100 units per month with a budgeted variable manufacturing overhead of $88,000 per month. During the last month, the company produced 1,000 units of product and incurred a total of $85,125 in Variable Manufacturing Overhead.

 

Question : If the Variable Manufacturing Overhead Efficiency Variance was $800 Favorable, what was the variable manufacturing overhead rate variance?

A) $4,325 Favorable B) $4,325 Unfavorable C) $5,925 Unfavorable D) $5,925 Favorable E) None of Above

 

Answer was C) but I need help with steps as to how and why.

Answer 1

The answer is c) 5,925 unfavorable variance.

 

The steps are:

1) budgeted STD overhead is $80 per machine hr. Therefore the actual overhead applying std rate is $80,000

 

 2) The actual MFG variance is 85,125-80,000 std = 5,125 unfavorable variance, this amount represents the net result.

   Since you know that the efficiency variance is 800 favorable, add 800 + 5,125=5,925 which is the rate of the

   unfavorable MFG variance.