Question

When *variable overhead efficiency variance is favorable*, it can be safely assumed that the ________.

A) actual rate per unit of the cost-allocation base is higher than the budgeted rate
B) actual quantity of the cost-allocation base used is higher than the budgeted quantity
C) actual rate per unit of the cost-allocation base is lower than the budgeted rate
D) actual quantity of the cost-allocation base used is lower than the budgeted quantities

Answer 1

When the variable overhead efficiency variance is favorable, it means that the actual quantity of the cost-allocation base used is lower than the budgeted quantities.

Step-by-step explanation:

When the variable overhead efficiency variance is favorable, it means that the actual quantity of the cost-allocation base used is lower than the budgeted quantities.

For example, if a company budgeted for 100 hours of direct labor to produce 10 units of a product but only needed 80 hours to produce the same number of units, the variable overhead efficiency variance would be favorable. This indicates that the company used fewer hours than anticipated to achieve the desired output.