Xero 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.Under a three-way breakdown (decomposition)of the total overhead variance,what is the total factory overhead spending variance for December?
A)N/A-this variance doesn't exist under a three-way breakdown of the total overhead variance.
B)$225 favorable.
C)$425 unfavorable.
D)$560 unfavorable.
E)$600 unfavorable.

Question

Quizplus · Accepted Answer

The total factory overhead spending variance can be decomposed as follows:

Total factory overhead variance = (Actual DLHs x Actual overhead rate) - (Actual DLHs x Standard overhead rate)

Total factory overhead variance = [(840 x $3.75) + $1,300] - [(840 x $3.15) + $1,350]

Total factory overhead variance = $4,950 - $4,390

Total factory overhead variance = $560 unfavorable

Xero Company's Standard Factory Overhead Rate Is $3