Question

A favourable variable manufacturing overhead efficiency variance may be interpreted as meaning which of the following if machine hours are the cost allocation base?

		Employees used too much electricity during production.
		Improved quality of materials resulting in less downtime to clean the machines of debris.
		Excess supplies were used.
		Too much of the cost driver was used.

Answer 1

• Variable overhead efficiency variance = (standard hours allowed – actual hours used) x Standard rate.
• A Favourable variance means that ACTUAL hours used are LESS than Standard hours allowed.
• Correct Answer based on above concept = Option #2:
  “Improved quality of materials resulting in less downtime to clean the machines of debris”
  Less Downtime must have resulted in LOWER no of actual machine hours used, leading to favourable variable overhead efficiency variance.