Answer (C) is correct . A favorable labor rate variance means the company is using lower-paid workers than what the standard-setters thought should be used. These workers are apparently less experienced or otherwise less skilled. As a result, the use of lower-paid workers may lead to an unfavorable labor efficiency variance or an unfavorable materials usage variance as the lower-skilled workers require more hours or more materials than would more skilled employees.
Answer (A) is incorrect because The continuation of a favorable variance is not a cause for concern; the idea of a standard cost system is that there should be no variances of any type.
Answer (B) is incorrect because The production manager may be using his resources efficiently, but that cannot be determined from the information given; perhaps the manager assigned the lower-paid workers to a job even though they were slower than more highly skilled workers.
Answer (D) is incorrect because The labor rate variance says nothing about production levels, either actual or budgeted.
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