Answer (A) is correct . When direct labor hours are the allocation base for variable overhead, an efficiency in the use of direct labor hours will naturally result in a favorable variable overhead efficiency variance. Among the items listed, highly skilled workers would be the most likely cause of a favorable direct labor efficiency variance.
Answer (B) is incorrect because Electric rates do not affect labor efficiency, which is the driver for variable overhead. Also, actual costs that were lower than expected would lead to a favorable rate or spending variance, not an efficiency variance.
Answer (C) is incorrect because Using fewer indirect materials does not affect the variable overhead efficiency variance when labor hours are the allocation base.
Answer (D) is incorrect because The level of output does not affect the variable overhead.
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