If Ferg Company has a $12,000 unfavourable variable overhead efficiency variance, which of the following statements would be TRUE?
A)Ferg would credit the Cost of Goods Sold account to write-off the variance.
B)Ferg used the variable overhead components more effectively than expected.
C)Ferg made efficient use of the cost driver.
D)Ferg used the variable overhead components and cost driver as expected.
E)Ferg did not use the cost driver efficiently.

Question

Quizplus · Accepted Answer

An unfavorable variable overhead efficiency variance means that more hours or units of the cost driver were used than expected to produce the actual output. Therefore, Ferg did not use the cost driver efficiently. Option A is wrong because the variance should be debited to the Manufacturing Overhead account and not credited to Cost of Goods Sold. Option B is wrong because an unfavorable variable overhead efficiency variance indicates inefficient use of the variable overhead components. Option C is wrong because efficient use of the cost driver would result in a favorable efficiency variance. Option D is wrong because an unfavorable variance implies that the actual use of the cost driver was more than the expected use.

If Ferg Company Has a $12,000 Unfavourable Variable Overhead Efficiency