Question

Zero Company's standard factory overhead application rate is $3.77 per direct labor hour (DLH), calculated at 90% capacity = 1,000 standard DLHs. In December, the company operated at 80% of capacity, or 889 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,100, of which $1,420 is fixed overhead. For December, the actual factory overhead cost incurred was $3,760 for 930 actual DLHs, of which $1,370 was for fixed factory overhead.

If Zero Company uses a two-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead flexible-budget variance for December (to the nearest whole dollar)? (Do not round intermediate calculations.)

• $235 favorable.

• $435 unfavorable.

• $660 unfavorable.

• $700 unfavorable.

• N/A—this variance doesn't exist under a two-way breakdown of the total overhead variance.

Answer 1

1. Total factory overhead flexible-budget variance = Total actual OverHead - flexible-budget based on output (or, std. allowed DLHs).

2. Total actual OH = $3,760 (given).

3. FB for OH, based on output = Budgeted fixed OH + Budgeted VOH based on standard allowed hours for actual output.

4. Budgeted fixed overhead = $1,420 (given).

5. Budgeted VOH = VOH allocation rate x standard DLHs allowed for this period's output = [($3,100 -$1,420)/889 DLHs] x 889 DLHs = = $1,680.

Therefore, FB variance = Total actual OH -FB based on output (or, std. allowed DLHs). =

$3,760 -($1,420 + $1,680) = $3,760 -$3,100 = $660 unfavorable

Answeris : 660 Unfavourable

*FB = Flexible Budget