Problem
Martin Manufacturing applies overhead to products using direct labor hours. To calculate a standard overhead allocation rate, Martin developed the following estimates for one month of production.
Direct labor hours at 100% of normal capacity 12,000 hours
Estimated fixed overhead costs $120,000
Estimated variable overhead costs at 100% of normal capacity $84,000
Martin's labor standards allow 0.5 direct labor hours for each unit produced. During November, 20,000 units produced. Actual fixed overhead costs were $120,000. Actual variable overhead costs were $88,000.
What is the formula for Variable efficiency variance? What is the variable efficiency variance for the above problem? What is the total variance for the problem?