Question

Under a three-variance breakdown (decomposition) of the total factory overhead variance, the total factory overhead efficiency variance, to the nearest whole dollar, is:

Options:
A) $100
B) $500
C) $1,000
D) $5,000

Answer 1

Under a three-variance breakdown (decomposition) of the total factory overhead variance, the total factory overhead efficiency variance, to the nearest whole dollar, is D) $5,000. (option D)

Step-by-step explanation:

In a three-variance breakdown of the total factory overhead, the total factory overhead efficiency variance measures the difference between the actual hours worked and the standard hours allowed, multiplied by the standard rate per hour. Mathematically, it is represented as:

`\[ \text{Total Factory Overhead Efficiency Variance} = (\text{Actual Hours} - \text{Standard Hours}) * \text{Standard Rate} \]`

Without specific numerical values provided, it is challenging to calculate the exact variance. However, the option with the highest amount, D) $5,000, represents the potential magnitude of the total factory overhead efficiency variance to the nearest whole dollar.

The total factory overhead efficiency variance is a critical metric that reflects the efficiency of the production process in utilizing labor hours. A positive variance indicates that the actual hours worked were less than the standard hours allowed, resulting in cost savings, while a negative variance suggests that the actual hours exceeded the standard, leading to higher costs. In this context, the higher the amount of the variance, the greater the impact on overall cost efficiency, justifying the selection of option D) $5,000 as the final answer.(option D)