In a company's standard costing system direct labor-hours are used as the base for applying variable manufacturing overhead costs. The standard direct labor rate is twice the variable overhead rate. Last period the labor efficiency variance was unfavorable. From this information one can conclude that last period the variable overhead efficiency variance was:
A)unfavorable and half the labor efficiency variance.
B)favorable and half the labor efficiency variance.
C)unfavorable and twice the labor efficiency variance.
D)favorable and twice the labor efficiency variance.

Question

Quizplus · Accepted Answer

The variable overhead efficiency variance is based on the same activity measure as the labor efficiency variance. Since the labor efficiency variance was unfavorable, the variable overhead efficiency variance will also be unfavorable. Given that the standard direct labor rate is twice the variable overhead rate, the variable overhead efficiency variance will be half the labor efficiency variance.

In a Company's Standard Costing System Direct Labor-Hours Are Used