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

Question

Quizplus · Accepted Answer

If the labor efficiency variance is unfavorable, it means that more labor hours were used to produce the same amount of output as expected. As variable overhead is applied based on direct labor hours, an unfavorable labor efficiency variance would lead to an unfavorable variable overhead efficiency variance.  The materials usage variance and variable overhead spending (expenditure) variance are not directly influenced by the labor efficiency variance. The labor rate variance may be affected by the labor efficiency variance, but there is not enough information given to determine its direction.

If Variable Overhead Is Applied Based on Direct Labour Hours