If variable manufacturing overhead is applied on the basis of direct labor-hours and the variable overhead rate variance is favorable, then:
A) the actual variable overhead rate exceeded the standard rate.
B) the standard variable overhead rate exceeded the actual rate.
C) the actual direct labor-hours exceeded the standard direct labor-hours allowed for the actual output.
D) the standard direct labor-hours allowed for the actual output exceeded the actual hours.

Question

Quizplus · Accepted Answer

If the variable overhead rate variance is favorable, it means that the actual variable overhead rate was lower than the standard rate. This could be due to factors such as lower prices for materials or more efficient use of resources. Since variable overhead is applied on the basis of direct labor-hours, a favorable variance suggests that the actual direct labor-hours were in line with or exceeded the standard hours allowed for the actual output. Therefore, choice B is the best answer as it indicates that the standard variable overhead rate exceeded the actual rate.

If Variable Manufacturing Overhead Is Applied on the Basis of Direct