Answer (B) is correct . An unfavorable direct labor efficiency variance indicates that actual hours exceeded standard hours. Too many hours may have been used because of inefficiency on the part of employees, excessive coffee breaks, machine down-time, inadequate materials, or materials of poor quality that required excessive rework. An unfavorable direct materials usage variance might be related to an unfavorable labor efficiency variance. Working on a greater quantity of direct materials may require more direct labor time.
Answer (A) is incorrect because The variable overhead spending variance may be affected by, but does not affect, a direct labor efficiency variance. It equals the difference between actual variable overhead, which includes indirect but not direct labor, and the variable overhead applied based on the standard rate and the actual activity level, which may or may not be measured in direct labor hours. Thus, the effect of an unfavorable direct labor efficiency variance is to decrease an unfavorable variable overhead spending variance or to increase a favorable variable overhead spending variance.
Answer (C) is incorrect because The fixed overhead volume variance does not affect, and is not affected by, a direct labor efficiency variance. It equals the difference between budgeted fixed overhead and the fixed overhead applied based on the standard rate and the standard input (e.g., direct labor) allowed for the actual output.
Answer (D) is incorrect because The variable overhead spending variance may be affected by, but does not affect, a direct labor efficiency variance. It equals the difference between actual variable overhead, which includes indirect but not direct labor, and the variable overhead applied based on the standard rate and the actual activity level, which may or may not be measured in direct labor hours. Thus, the effect of an unfavorable direct labor efficiency variance is to decrease an unfavorable variable overhead spending variance or to increase a favorable variable overhead spending variance.
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