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Tiger Corporation uses a standard cost system and applies overhead based on direct labor hours. If...

Tiger Corporation uses a standard cost system and applies overhead based on direct labor hours. If the actual quantity of direct labor hours exceeds the standard hours allowed:

an favorable variable overhead rate variance will exist

an unfavorable variable overhead efficiency variance will exist

a favorable variable overhead efficiency variance will exist

a favorable labor rate variance will exist

Solutions

Expert Solution

An unfavorable variable overhead efficiency variance will exist when the actual quantity of direct labor hours exceeds the standard hours allowed and company applies overhead based on direct labor hours.

Unfavorable variable overhead efficiency variance is the variance that arises due to the efficiency of the workers i.e. the actual hours they took to complete a job and the time that should have been taken as per the standards. As Tiger Corporation uses a standard cost system & applies overhead based on direct labor hours and actual quantity of direct labor hours is more than standards allowed then there will exist a Unfavorable variable overhead efficiency variance.

Formula for calculating Variable Overhead Efficiency Variance is (Standard hours for actual production -Actual hours)*Standard Rate

The above formula clears that variable overhead efficiency variance is due to difference between the actual hours worked and the standard hours allowed.

Hence option b is the correct answer.

ekkarill92 answered 2 years ago
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