Question

Variable manufacturing overhead is applied to products on the basis of standard direct labor-hours. If the labor efficiency variance is favorable, the variable overhead efficiency variance will be:

Answer 1

If the labor efficiency variance is favorable, the variable overhead efficiency variance will be unfavorable.

Explanation:

The difference between the time it takes truly to manufacture a product and the time that had been budgeted for it, and the impact that this difference places is called variable overhead efficiency variance.

For example: The number of hours taken to manufacture an amount of product may differ from the actual budgeted hour, it may be more or less.

The VOEV is calculated as: $(actual\ labor\ hour - budgeted\ hour) \times hourly\ rate.$

If the actual labor hour is less than budgeted labor amount, the "variable overhead efficiency variance" is favorable, and if the actual labor hour is more than the budgeted labor hour, the variance is thus unfavorable.