If variable manufacturing overhead is applied based on direct labor-hours, it is impossible to have a favorable labor rate variance and unfavorable variable overhead rate variance for the same period.

Question

Quizplus · Accepted Answer

It is possible to have a favorable labor rate variance and an unfavorable variable overhead rate variance if there is a difference between the actual direct labor-hours used and the estimated direct labor-hours used to calculate the variable overhead rate variance. For example, if actual direct labor-hours are higher than estimated, the variable overhead rate variance would be unfavorable because the fixed overhead costs would be spread over more hours, resulting in a lower rate per hour. However, if the actual labor rate paid is lower than the estimated rate used to calculate the labor rate variance, then the labor rate variance would be favorable.

If Variable Manufacturing Overhead Is Applied Based on Direct Labor-Hours