ECONOMICS

Detailed explanation-1: -An unfavorable direct labor variance is caused by more than budgeted direct labor hours, and because the same formula is used to calculate the variable overhead variance, this variance must be unfavorable when the direct labor variance is unfavorable.

Detailed explanation-2: -Hence, when the direct labor efficiency variance is favorable (standard is higher than actual labor hours), the variable overhead efficiency variance will be favorable.

Detailed explanation-3: -Understanding Variable Overhead Efficiency Variance 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.

Detailed explanation-4: -An unfavorable direct labor rate variance indicates that the actual direct labor cost per hour exceeded the standard direct labor cost per hour for Actual Quantity (AQ) of direct labor hours.

Detailed explanation-5: -What is Variable Overhead Efficiency Variance? Variable overhead efficiency variance is a measure of the difference between the actual costs to manufacture a product and the costs that the business entity budgeted for it. Thus, it can arise from a difference in productive efficiency.