Question

Canister Industries uses labor hours to apply variable overhead to production. If the company's workers were very inefficient during the period, which of the following statements would be true about the variable-overhead efficiency variance?

The variance would be the same amount as the labor efficiency variance.

The nature of the variance (favorable or unfavorable) would be unknown based on the facts presented.

None of the answers is correct.

The variance would be favorable.

The variance would be unfavorable.

Answer 1

The variance would be unfavorable.

Step-by-step explanation:

Variable overhead efficiency variance = (actual labor hours less budgeted labor hours) x hourly rate

As Actual labor hour increase that could be due to inefficient of workers, total variance will also increased. Inefficient Labor will spend more labor hours to complete a work. The actual Labor hour will be more than the budgeted labor hours. This will increase the overhead cost. The increase in any type of cost is unfavorable because it effects the margin. So the variance due to inefficiency of the workers are unfavorable for Canister Industries.