Akao Products uses a standard cost system. Variable overhead costs are allocated based on direct labor hours. In the first quarter, Akao had an unfavorable 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 number of direct labor hours was higher than the budgeted hours. C. The actual variable overhead costs were higher than the budgeted costs. D.
Akao Products uses a standard cost system. Variable overhead costs are allocated based on direct labor hours. In the first quarter, Akao had an unfavorable 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 number of direct labor hours was higher than the budgeted hours. C. The actual variable overhead costs were higher than the budgeted costs. D.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Akao Products uses a standard cost system. Variable overhead costs are allocated based on direct labor hours. In the first quarter, Akao had an unfavorable efficiency variance for variable overhead costs. Which of the following scenarios is a reasonable explanation for this variance?
The actual number of direct labor hours was lower than the budgeted hours.
The actual number of direct labor hours was higher than the budgeted hours.
The actual variable overhead costs were higher than the budgeted costs.
The actual variable overhead costs were lower than the budgeted costs.
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