Smithville 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 other answers are correct.

Question

Quizplus · Accepted Answer

If the workers were very inefficient during the period, it means that they took more time to complete the same amount of work than expected. This would result in more labor hours being used than budgeted, which would increase variable overhead costs. As a result, the variable-overhead efficiency variance would be unfavorable.

Smithville Uses Labor Hours to Apply Variable Overhead to Production