Question

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Item 16

Zero Company's standard factory overhead rate is $3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead.

Assuming a four-variance breakdown (decomposition) of the total overhead variance, what is the fixed factory overhead efficiency variance (to the nearest whole dollar) for the period?

Answer 1

N/A—this variance does not exist

correct option

Factory overhead efficiency variance = (Actual Output x FOAR ) - (Budgeted Output x FOAR)
Fixed OH application rate = $1,350/900 DLHs =	$         1.50	per DLH
Fixed production overhead volume efficiency variance =  (Standard DLHs for actual production  - denominator activity level) x Fixed OH application  rate/DLH =
Fixed production overhead volume efficiency variance = (800  - 900) DLHs x $1.50/DLH =	$     150.00	UF
Fixed OVH spending variance = actual fixed overhead - budgeted fixed overhead = $1,300  (given)  - $1,350 (given)	$       50.00	F