Question

Are the variable overhead efficiency variance and the labour efficiency variance related? Explain with two reasons

Answer 1

variable overhead efficiency variance is defined as (actual labor hours less budgeted labor hours) x hourly rate for standard variable overhead, which includes such indirect labor costs as shop foreman and security. If actual labor hours are less than the budgeted or standard amount, the variable overhead efficiency variance is favorable; if actual labor hours are more than the budgeted or standard amount, the variance is unfavorable.

Direct Labor Efficiency Variance is the measure of difference between the standard cost of actual number of direct labor hours utilized during a period and the standard hours of direct labor for the level of output achieved

Therefore the direct labour efficiency variance affect the variable overhead efficiency variance

direct labour hours is directly proportional to the variable overhead efficiency as direct labour hour decreases overhead eficiency also decreases

Similarly when direct labour efficiency increases variableoverhead efficiency also increases