Suppose a company's variable overhead is applied on the basis of direct labour hours, and the company has an unfavourable direct labour efficiency variance. What is most likely to result?
A) The direct labour rate variance will be favourable.
B) The direct materials usage variance will be unfavourable.
C) The variable overhead spending variance will be unfavourable.
D) The variable overhead efficiency variance will be unfavourable.

Question

Quizplus · Accepted Answer

If the company has an unfavourable direct labour efficiency variance, it means that more direct labour hours were used than should have been used to complete the production. This will result in a higher allocation of variable overhead to the production, leading to an unfavourable variable overhead efficiency variance. Therefore, option D is the best choice. The direct labour rate variance and direct materials usage variance may or may not be affected by the direct labour efficiency variance, so options A and B cannot be chosen as the best choice. The variable overhead spending variance may also be affected by other factors such as price changes, so it is not the best choice.

Suppose a Company's Variable Overhead Is Applied on the Basis