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 a four-variance breakdown (decomposition) of the total overhead variance, what is the fixed factory overhead efficiency variance (to the nearest whole dollar) for the period?
A) N/A—this variance does not exist.
B) $225 favorable.
C) $425 unfavorable.
D) $650 unfavorable.

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 a four-variance breakdown (decomposition) of the total overhead variance, what is the fixed factory overhead efficiency variance (to the nearest whole dollar) for the period?

Assuming a four-variance breakdown (decomposition) of the total overhead variance, what is the fixed factory overhead efficiency variance (to the nearest whole dollar) for the period?
A) N/A—this variance does not exist.
B) $225 favorable.
C) $425 unfavorable.
D) $650 unfavorable.

Quizplus · Accepted Answer

Fixed factory overhead efficiency variance does not exist because efficiency variances relate to the use of variable costs in relation to actual output, not fixed costs. Fixed costs do not vary with the level of production or efficiency.

Zero Company's Standard Factory Overhead Rate Is $3