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The variable overhead efficiency variance compares the hours times the standard rate with the standard hours allowed for the actual output times the rate

Question

The variable overhead efficiency variance compares the

the hours times the standard rate with the
the standard hours allowed for the actual output times the
the rate

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Solution

The variable overhead efficiency variance is a measure used in management and cost accounting to assess the efficiency of a company's use of variable overhead based on the standard cost of labor hours. Here's how it's calculated:

  1. Determine the standard hours allowed for the actual output: This is the amount of time that should have been used to produce the actual output. It's calculated by multiplying the actual output by the standard hours per unit.

  2. Calculate the standard cost of these hours: This is done by multiplying the standard hours allowed for the actual output by the standard variable overhead rate.

  3. Determine the actual hours used: This is the actual amount of time used to produce the output.

  4. Calculate the standard cost of these actual hours: This is done by multiplying the actual hours used by the standard variable overhead rate.

  5. Subtract the standard cost of the actual hours used (step 4) from the standard cost of the standard hours allowed for the actual output (step 2). This gives you the variable overhead efficiency variance.

If the variance is positive, it means that less time was used than expected (i.e., efficiency was higher than expected). If the variance is negative, it means that more time was used than expected (i.e., efficiency was lower than expected).

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