Reference: 11-13
The Upton Company employs a standard costing system in which variable overhead is assigned to production on the basis of direct labour hours. Data for the month of February include the following:
Variable manufacturing overhead cost incurred: $48,700
Total variable overhead variance: $300 F
Standard hours allowed for actual production: 7,000
Actual direct labour hours worked: 6,840
-An unfavourable labour efficiency variance indicates that:
A)the actual labour rate was higher than the standard labour rate.
B)actual labour hours worked exceeded standard labour hours for the production level achieved.
C)the labour rate variance must also be unfavourable.
D)overtime labour was used during the period.

Question

Quizplus · Accepted Answer

An unfavourable labour efficiency variance indicates that the actual direct labour hours worked exceeded the standard labour hours for the production level achieved. Since Upton Company assigns variable overhead based on direct labour hours, the fact that less labour hours were worked than expected would result in a favourable variable overhead variance. Therefore, options A, C, and D are not correct.

Reference: 11-13 The Upton Company Employs a Standard Costing System in Which