Question

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 (quantity) variance was unfavorable. From this information one can conclude that last period the variable overhead efficiency (quantity) variance was:

Answer 1

Answer:

From this information one can conclude that last period the variable overhead efficiency (quantity) variance was unfavorable.

Explanation:

The variable overhead efficiency variance measures the difference between the actual and budgeted hours worked with respect to standard variable overhead rate per hour.

Variable overhead efficiency variance can be calculated thus:

Actual labor hours less budgeted labor hours x Hourly rate for standard variable overhead

If the time it takes to manufacture a product and the time budgeted for it matches or performs well, the labor efficiency is favorable.

Variable overhead efficiency variance is deemed unfavorable when it takes the company more time than budgeted to produce. This also shows labor efficiency variance was unfavorable.