Discount Sales Company uses a standard cost system.Variable overhead costs are allocated based on direct labor hours.In the first quarter,Discount Sales had a favorable cost 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

A favorable cost variance for variable overhead costs means that the actual costs were lower than the budgeted costs. Therefore, option C - the actual variable overhead costs were lower than the budgeted costs - is a reasonable explanation for this variance. Options A and D relate to direct labor hours and are not relevant to explaining the variance for variable overhead costs. Option B suggests that the actual variable overhead costs were higher than the budgeted costs, which would result in an unfavorable cost variance, not a favorable one.

Discount Sales Company Uses a Standard Cost System