Variable overhead efficiency variance
Using the information provided above for Company E, calculate the variable overhead
efficiency variance for the company for September. Additional information is
also available as follows:

Question

Accepted Answer

The variable overhead efficiency variance is £40,000 (favourable).

The variable overhead absorption rate (see above) on the basis of standard labour
hours is £40 per hour (£200,000/50,000). On the basis of the standard hours needed
to produce one unit, a production of 9,000 units should have taken 4,500 direct
labour hours (9,000 × 0.5 = 4,500). In fact the actual production took 4,000 hours.
As there is a difference between the number of hours planned for production and the
number of hours actually taken, a variance has resulted caused in this case by greater
efficiency (fewer hours actually needed than planned).

	£
Actual hours × standard absorption rate (4,000 × £40)	160,000
Standard hours × standard absorption rate (5,000 × £40)	200,000
Favourable efficiency variance	40,000

Looking back at the information provided by Company E, the total variable overhead
variance – comparing the standard cost of the variable overheads (£200,000)
with the actual cost (£190,000) – is £10,000 favourable. Our calculations in Activity11.3(a) and here have split this between a £30,000 adverse expenditure variance and
a £40,000 favourable efficiency variance, as shown in Figure 11.7.

Question 11.3[b]: Variable overhead efficiency variance Using the information ...

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