Discount Sales Company uses standard costing to manage their direct costs and their overhead costs. Overhead costs are allocated based on direct labor hours. In the first quarter, Discount Sales had a favorable efficiency variance for their variable overhead costs. Which of the following scenarios would be a reasonable explanation for that variance?

Question

Quizplus · Accepted Answer

A favorable efficiency variance indicates that less labor hours were used than budgeted. Since overhead costs are allocated based on direct labor hours, using less labor hours would result in lower variable overhead costs, leading to a favorable variance.

Discount Sales Company Uses Standard Costing to Manage Their Direct