Canister Industries uses labor hours to apply variable overhead to production. If the company's workers were very inefficient during the period, which of the following statements would be true about the variable-overhead efficiency variance?
A) The variance would be favorable.
B) The variance would be unfavorable.
C) The nature of the variance (favorable or unfavorable) would be unknown based on the facts presented.
D) The variance would be the same amount as the labor efficiency variance.
E) None of the answers is correct.

Question

Quizplus · Accepted Answer

The variable-overhead efficiency variance would be unfavorable because inefficiency in labor hours (requiring more hours than planned) typically leads to higher variable overhead costs than budgeted, assuming variable overhead is applied based on labor hours.

Canister Industries Uses Labor Hours to Apply Variable Overhead to Production