Zero Company's standard factory overhead application 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 incurred was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead.

If Zero Company uses a two-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead flexible-budget variance for December (to the nearest whole dollar)?
A) N/A—this variance doesn't exist under a two-way breakdown of the total overhead variance.
B) $225 favorable.
C) $425 unfavorable.
D) $650 unfavorable.
E) $690 unfavorable.

Question

Zero Company's standard factory overhead application 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 incurred was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead.

If Zero Company uses a two-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead flexible-budget variance for December (to the nearest whole dollar) ?

If Zero Company uses a two-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead flexible-budget variance for December (to the nearest whole dollar)?
A) N/A—this variance doesn't exist under a two-way breakdown of the total overhead variance.
B) $225 favorable.
C) $425 unfavorable.
D) $650 unfavorable.
E) $690 unfavorable.

Quizplus · Accepted Answer

Under a two-way breakdown of the total overhead variance, the total overhead variance is split into a variable overhead variance and a fixed overhead variance.

Variable overhead variance = Actual variable overhead - (Standard variable overhead rate x Actual DLHs) 
= $2,500 - ($3.75 x 840) 
= $2,500 - $3,150 
= $650 unfavorable

Fixed overhead variance = Actual fixed overhead - Budgeted fixed overhead 
= $1,300 - $1,350 
= $50 favorable

Total factory overhead flexible-budget variance = Variable overhead variance + Fixed overhead variance 
= ($650 unfavorable) + ($50 favorable) 
= $600 unfavorable

Therefore, the best choice is D, $650 unfavorable.

Zero Company's Standard Factory Overhead Application Rate Is $3