Question

As part of her annual review of her​ company's budgets versus​ actuals, Mary Gerard isolates unfavorable variances with the hope of getting a better understanding of what caused them and how to avoid them next year. The variable overhead efficiency variance was the most unfavorable over the previous​ year, which Gerard will specifically be able to trace​ to:

Answer 1

Options:

a. Actual overhead costs below applied overhead costs

b. Actual production units below budgeted production unit

c. Standard direct labor hours below actual direct labor hours

d. The standard variable overhead rate below the actual variable overhead rate

Answer: c. Standard direct labor hours below actual direct labor hours

Explanation: The variable overhead efficiency variance can obtained by multiplying the difference between the actual and Budgeted labour hours by the hourly rate for standard variable overhead. In this case, the outcome may be favorable or unfavorable. The variable overhead efficiency variance will be favorable if the actual labor hours is less than the budgeted hours while it will be unfavorable if the actual labor hours exceed the budgeted labor hours as described in the scenario above.