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

Question

Quizplus · Accepted Answer

A favorable variance means that the actual cost was lower than the standard cost. If variable overhead is applied on the basis of direct labor-hours and the variance is favorable, it means that the actual direct labor-hours used were less than the standard hours allowed for the actual output, resulting in a lower actual overhead cost than what was budgeted at the standard variable overhead rate. Therefore, the standard variable overhead rate exceeded the actual rate, leading to a favorable variance.

If Variable Overhead Is Applied on the Basis of Direct