Cheapo Sales Company uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Cheapo Sales had a favorable efficiency variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.

Question

Quizplus · Accepted Answer

The favorable efficiency variance for variable overhead costs could be explained by the actual number of direct labor hours being lower than the budgeted hours. This means that the production process was completed in less time than expected, resulting in lower variable overhead costs than budgeted.

Cheapo Sales Company Uses a Standard Cost System