Question

An unfavorable variable overhead efficiency variance indicates that:

A) variable overhead items were not used efficiently

B) the price of variable overhead items was more than budgeted

C) the variable overhead cost-allocation base was not used efficiently

D) the denominator level was not accurately determined

Answer 1

Answer: A) Variable overhead items were not used efficiently.

Variable overhead efficiency variance is used to measure how efficiently the production department converts variable inputs into output. Typically labor hours is the variable input which is analyzed using this variance and a favourable variable overhead efficiency variance would mean the labor hours were more efficient than was budgeted and an unfavorable variance means the labor hours were less efficient than budgeted.