Answer (A) is correct . The variable overhead efficiency variance equals the product of the variable overhead application rate and the difference between the standard input for the actual output and the actual input. Hence, the variance will be zero if variable overhead is applied on the basis of units of output because the difference between actual and standard input cannot be recognized.
Answer (B) is incorrect because The variance will be zero.
Answer (C) is incorrect because The variance will be zero.
Answer (D) is incorrect because The correlation between the variable overhead and direct labor efficiency variances occurs only when overhead is applied on the basis of direct labor.
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