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?
A)The variance would be favorable.
B)The variance would be unfavorable.
C)The nature of the variance (favorable or unfavorable) would be unknown based on the facts presented.
D)The variance would be the same amount as the labor eﬃciency variance.
E)None of the answers is correct.

Question

Quizplus · Accepted Answer

If the workers were very inefficient during the period, it would mean that they took longer to complete the same amount of work and hence more labor hours were used. Since the variable overhead is applied based on labor hours, a higher amount of variable overhead would be applied than what was actually needed. This would result in an unfavorable variable-overhead efficiency variance.

Canister Industries Uses Labor Hours to Apply Variable Overhead to Production.If