COST ACCOUNTING
FLEXIBLE BUDGETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Efficiency variance, because it reflects how efficient our activity base is
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Efficiency variance, because it measures the standard hours based on actual output
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Spending variance, because it measures the difference between actual and standard direct labour hours
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Spending variance, because it adjusts for actual quantity of cost driver and reflects how efficiently we have been using overheads
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Detailed explanation-1: -Variable overhead spending variance is favorable if the actual costs of indirect materials are lower than the standard or budgeted variable overheads. Variable overhead spending variance is unfavorable if the actual costs are higher than the budgeted costs.
Detailed explanation-2: -The flexible budget variance measures the difference between the actual variable overhead costs and the flexible budget for variable overhead costs. It is also called the budget variance because it measures the difference between the budgeted amount that must be incurred versus the actual amount incurred.
Detailed explanation-3: -Variable overhead efficiency variance refers to the difference between the true time it takes to manufacture a product and the time budgeted for it, as well as the impact of that difference.
Detailed explanation-4: -What is the Variable Overhead Efficiency Variance? A favorable variance means that the actual hours worked were less than the budgeted hours, resulting in the application of the standard overhead rate across fewer hours, resulting in less expense being incurred.