Discount Brand Products 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 Brand 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 for variable overhead costs occurs when the actual number of direct labor hours used is lower than the budgeted hours, indicating that the work was completed in less time than expected, thus costing less in terms of variable overheads that are allocated based on those hours.

Discount Brand Products Uses Standard Costing to Manage Their Direct