Question

What will cause the variable-overhead efficiency variance?

1) Efficient or inefficient use of a specific component of variable overhead (e.g., electricity).
2) Full or partial utilization of major equipment resources.
3) Production of units in excess of the number of units sold.
4) Efficient or inefficient use of the cost driver (e.g., machine hours) for variable overhead.
5) Changes in the salary cost of production supervisors

Answer 1

The variable-overhead efficiency variance typically arises from the efficiency of using cost drivers such as labor or machine hours. Favorable variances occur with efficient use, and unfavorable variances result from inefficient use, not from changes in fixed costs like supervisor salaries.

Step-by-step explanation:

The variable-overhead efficiency variance is mainly caused by how efficiently a company uses the cost drivers of the variable overhead, such as labor hours or machine hours. Variable overhead typically consists of costs like indirect materials, indirect labor, and utilities that vary with production levels. This variance occurs when there is a difference between the expected cost driver amount and the actual cost driver used.

An efficient use of a cost driver, leading to lower actual hours than budgeted, would result in a favorable efficiency variance. In contrast, inefficient use, resulting in more hours than expected, would generate an unfavorable variance. For example, variable costs would increase due to additional labor required for producing more units. However, if workers or machines operate more efficiently than planned, this could lead to lower-than-expected variable costs. Moreover, major equipment resources not fully utilized or production exceeding sales could also influence this variance.

Changes in costs that are not directly tied to production efficiency, such as changes in the salary costs of production supervisors, would not fall under efficiency variance but might affect other types of variances like rate or spending variances.