Bailey Corporation.incurred 2,300 direct labor hours to produce 600 units of product.Each unit should take 4 direct labor hours.Bailey Corporation applies variable overhead to production on a direct labor hour basis.The variable overhead efficiency variance
A)will be unfavorable.
B)will be favorable.
C)will depend upon the capacity measure selected to assign overhead to production.
D)is impossible to determine without additional information.

Question

Quizplus · Accepted Answer

Since each unit is expected to take 4 direct labor hours, in total, 600 units should take 2,400 direct labor hours to produce (600 units x 4 direct labor hours per unit). However, Bailey Corporation only used 2,300 direct labor hours to produce the 600 units, indicating that the actual direct labor hour usage was more efficient than the standard. As a result, the variable overhead efficiency variance will be favorable, as less variable overhead costs were incurred due to the more efficient usage of direct labor hours.