Final answer:
A favorable variable overhead spending variance due to using machine-hours as an overhead cost-allocation base is most likely caused by a decline in energy costs. Capital-intensive production technologies become more favorable as labor costs rise, leading to increased investments in machinery and potentially fewer labor hours needed.
Step-by-step explanation:
When machine-hours are used as an overhead cost-allocation base, a favorable variable overhead spending variance typically indicates that costs are lower than expected. A likely cause of this favorable variance could be C) a decline in the cost of energy. This is because energy costs often constitute a significant portion of variable machine expenses; hence, a reduction in energy rates would directly lead to spending less on variable overheads than planned. Meanwhile, options such as excessive machine breakdowns or heightened product demand would not create a favorable variance as they tend to increase costs or are related to sales volume rather than production efficiency.
The concept of choosing production technology based on cost involves firms opting for methods that reduce total costs. This often leads to a preference for capital-intensive technologies when labor costs increase. As wages rise, firms find it beneficial to invest in machinery, which reduces the need for labor hours. This approach also allows union workers to be more productive by using better physical capital equipment, but typically results in the firm employing fewer workers.