Question

1) 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 the use of a two-way breakdown (decomposition) of the total overhead variance, what is the factory overhead efficiency variance for Zero Company in December (to the nearest whole dollar)?

A) $150 unfavorable.

B) N/A—this variance does not exist under a two-way breakdown of the total overhead variance.

C) $90 unfavorable.

D) $225 favorable.

E) $425 unfavorable.

2) Gerhan Company's flexible budget for the units manufactured in May shows $15,640 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 6,120 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead.

What is the fixed factory overhead spending variance (to the nearest whole dollar) in December for Gerhan Company?

A) $300 favorable.

B) $180 unfavorable.

C) $0.

D) $680 unfavorable.

E) $480 unfavorable.

Answer 1

1. answer is option D

factory overhead efficiency variance = SR * (AH-SH) = 3.75*(840-900) = -225 = 225 Favorable

2. answer is option D

Change in budgeted OH, 90% and 70% of capacity = (6120*3)-15640 = 2720

proportionate hours at 70% capacity = 6120*70%/90% = 4760.

Change in budgeted OH hours from 90% capacity - 70% capacity = 6,120 - 4,760 = 1,360

variable overhead rate per hour = 2720/1360 = 2

Fixed overhead rate = 3-2 = 1

fixed factory overhead spending variance = applied overhead - budgeted overhead rate = (6800)-(6120*1) = 680 = 680 unfavorable