Question

Question 35) Cavalaris Products uses a standard cost system. Overhead costs are allocated based on direct labor hours. In the first quarter, Cavalaris had an unfavorable cost variance for variable overhead costs. Which of the following scenarios is a reasonable explanation for this variance?

A) The actual mumber of direct labor hours was lower than the buderted hours

B)The actual variable overhead costs were higher than the budgrted costs

C)The actual variable overhead costs were lower than the budgntnd costs

D)The actual number of darect labor bours was bigber than the bodgeted hours

Answer 1

B.The actual variable overhead costs were higher than the budgeted costs.

Variable overhead cost variance is the difference between the amount of overheads applied and the amount of overhead actually incurred.

So, this will be unfavorable when the overhead actually incurred are greater than the overhead costs absorbed or in other words budgeted.

This ratio will be favorable when the overhead actually incurred is less than the overhead cost absorbed.