Question

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 four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead efficiency variance for Zero Company in December?

$650 unfavorable.

$150 unfavorable.

$225 favorable.

$425 unfavorable.

$90 unfavorable.

Answer 1

factory overhead efficiency variance = $90

so correct option is $90 unfavorable

Step-by-step explanation:

given data

overhead rate = $3.75 per direct labor hour

90% capacity = 900 standard direct labor hour

80% capacity = 800 standard

factory overhead 80% capacity = $3,150

fixed overhead = $1,350

actual factory overhead cost = $3,800

fixed factory overhead = $1300

to find out

variable factory overhead efficiency variance

solution

we know that variance is difference between the actual costs and the budgeted cost

now we get here standard variable overhead rate at 80% capacity that is express as

Standard variable overhead rate = ( Budgeted factory overhead - Fixed overhead ) ÷ Direct labor hours .......................1

put here value we get

Standard variable overhead rate =
`(3150 - 1350)/(800)`

Standard variable overhead rate = $2.25

and

now we get here factory overhead efficiency variance that is express as

factory overhead efficiency variance = Standard variable overhead rate × (actual direct labor hours - Budgeted direct labor hours ) ...................2

put here value we get

factory overhead efficiency variance = $2.25 × ( 840 - 800 )

factory overhead efficiency variance = $90

and actual cost is greater than the budgeted cost

so correct option is $90 unfavorable