CMA Study Group

Dear Mates,

Can any one Please answer me for the below question

if overhead is applied on the basis of units of output, the variable overheard efficiency variance will be 

1. Zero

2. Unfavourable

3. Favourable

4. A function of direct labour efficiency variance

Hi Reshma

will be zero because

Variable overhead efficiency variance = (actual labor hours - standard labor hours allowed for actual production) x standard variable overhead rate.

thanks

Dear Dafaalla,

Thank you for your answer.

can you please elaborate as i m not knowing why it is zero??

Hi Reshma,

The reason why VOH efficiency variance is zero when the basis of OH variance is units of output is because the variance yields an unrecognizable result. Efficiency variance measures how effective the production dept was in terms of the use of factory resources in producing its finished goods. Recall that efficiency variance in essence compares your actual input (normal cost driver is direct labor shours) from the standard input based on actual input to provide a meaningful analysis of how effective the production team was during a given period. By using a cost driver as the units of output, what will be the numbers that you will compare?

Than u angel ithink by this commentment the answer and the reason is clear .

Thank you Angel for your reasoning. Now i undertood why it is zero.