If variable manufacturing overhead is applied on the basis of direct labour-hours and the variable overhead spending variance is favourable, then the
A)actual variable manufacturing overhead rate exceeded the standard rate.
B)standard variable manufacturing overhead rate exceeded the actual rate.
C)actual direct labour-hours exceeded the standard direct labour-hours allowed for the actual output.
D)standard direct labour-hours allowed for the actual output exceeded the actual hours.

Question

Quizplus · Accepted Answer

If the variable overhead spending variance is favourable, it means the actual variable overhead cost is less than the standard variable overhead cost. Since the variable overhead is applied based on direct labour-hours, the favourable spending variance indicates that the actual direct labour-hours worked were less than the standard direct labour-hours allowed for the actual output. This means that the standard variable overhead rate (based on standard direct labour-hours) exceeded the actual variable overhead rate (based on actual direct labour-hours). Therefore, the answer is B.

If Variable Manufacturing Overhead Is Applied on the Basis of Direct