If variable overhead is applied based on direct labour hours and there is an unfavourable labour efficiency variance,
A)the materials usage variance will be unfavourable.
B)the labour rate variance will be favourable.
C)the variable overhead efficiency variance will be unfavourable.
D)the variable overhead spending variance will be unfavourable.

Question

Quizplus · Accepted Answer

Since variable overhead is applied based on direct labour hours, an unfavourable labour efficiency variance indicates that more labour hours were used than expected. This means that more variable overhead costs were incurred than expected for the actual level of production. Therefore, the variable overhead efficiency variance will be unfavourable. The materials usage variance and labour rate variance are not directly affected by the labour efficiency variance since they relate to the cost of materials and labour, respectively. The variable overhead spending variance relates to the difference between the actual and budgeted variable overhead costs, and is not affected by the level of labour efficiency.

If Variable Overhead Is Applied Based on Direct Labour Hours