A manufacturing company accumulates the following data on variable overhead: Actual cost incurred $61,000; Budgeted variable overhead at hours used $64,000; Applied variable overhead $60,000. The variable overhead efficiency variance is:

• A. $4,000 F
• B. $-4,000 U
• C. $4,000 U
• D. $-4,000 F

Answer: (C)

Variable overhead efficiency variance shows whether the actual level of activity used more or fewer hours than what the standard costs anticipate, at the standard variable overhead rate. Here, the budgeted variable overhead for the actual level of activity is 64,000, while the overhead that was applied to production (using the standard rate) is 60,000. The difference is 64,000 − 60,000 = 4,000, which is a favorable variance. This indicates overhead was allocated to production at a lower amount than the budgeted amount for the actual hours, reflecting more efficient use of activity.

For context, the actual variable overhead cost is 61,000, which leads to other related variances: spending variance = 61,000 − 64,000 = 3,000 favorable, and the total variable overhead variance = 61,000 − 60,000 = 1,000 unfavorable.