Felter Company uses a standard costing system based on direct labour hours. Last month, Felter Company used more direct labour hours than planned, while the production level was consistent with expectations. This is likely to result in
A) unfavourable fixed overhead variance and unfavourable variable overhead spending variance.
B) unfavourable fixed overhead variance and unfavourable variable overhead efficiency variance.
C) unfavourable variable overhead spending variance.
D) unfavourable variable overhead efficiency variance.

Question

Quizplus · Accepted Answer

Since Felter Company uses a standard costing system based on direct labour hours, an increase in direct labour hours above the standard would result in an unfavourable variable overhead efficiency variance. This variance indicates that more variable overhead costs were incurred because more direct labour hours were used than expected. The other options are incorrect because they do not take into account the impact on variable overhead costs specifically related to direct labour hours.

Felter Company Uses a Standard Costing System Based on Direct