Question

Gerhan Company's flexible budget for the units manufactured in May shows $15,420 of total factory overhead; this output level represents 70% of available capacity. During May, the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH), based on a denominator volume level of 6,030 DLHs, which represents 90% of available capacity. The company used 6,000 DLHs and incurred $18,400 of total factory overhead cost during May, including $6,900 for fixed factory overhead.

What is the fixed factory overhead spending variance (to the nearest whole dollar) in December for Gerhan Company? (Round your intermediate calculation to 2 decimal places.)

Multiple Choice

• $810 unfavorable.

• $0.

• $610 unfavorable.

• $310 unfavorable.

• $430 favorable.

Answer 1

Hours at 90% of capacity	6030
Hours at 70% of capacity [ 6030*70/90 ]	4690
Total overhead at 90% of capacity [ 3 * 6030 ]	18090
Total overhead at 70% of capacity	15420

	Hours	Total overhead
90% of capacity	6030	18090
70% of capacity	4690	15420
Difference	1340	2670

Variable overhead rate = Difference in total overhead / Difference in Hours = 2670 / 1340	1.99
Now let us calculate fixed overhead using 90% of capacity data
Total overhead = ( Hours * Variable overhead rate ) + Fixed overhead
18090 = ( 6030 * 1.99 ) + Fixed overhead
18090 = 12000 + Fixed overhead
Fixed overhead = 18090 - 12000	6090

Budgeted fixed overhead	6090
(-) Actual fixed overhead	6900
Fixed overhead spending variance	810	Unfavorable