Neptune Inc. uses a standard cost system and has the following information for the most recent month, April:$\begin{array}{lr}
\text { Actual direct labor hours (DLHs) worked } & 17,000 \
\text { Standard DLHs allowed for good output produced this period } & 18,000 \
\text { Actual total factory overhead costs incurred } & \$ 45,400 \
\text { Budgeted fixed factory overhead costs } & \$ 10,800 \
\text { Denominator activity level, in direct labor hours (DLHs) } & 15,000 \
\text { Total factory overhead application rate per standard DLH } & \$ 2.70
\end{array}$The total factory overhead spending variance in April for Neptune, Inc., to the nearest whole dollar, was:
A) $940 unfavorable.
B) $1,040 favorable.
C) $1,980 favorable.
D) $2,160 favorable.
E) $3,200 favorable.

Question

Quizplus · Accepted Answer

The total factory overhead spending variance is calculated by comparing the actual factory overhead costs to the budgeted (or expected) factory overhead costs based on the actual activity. The budgeted factory overhead costs can be calculated by applying the total factory overhead application rate per standard DLH to the actual direct labor hours worked.Budgeted factory overhead costs for actual hours worked = Actual DLHs worked * Total factory overhead application rate per standard DLH = 17,000 DLHs * $2.70/DLH = $45,900Total factory overhead spending variance = Actual total factory overhead costs incurred - Budgeted factory overhead costs for actual hours worked = $45,400 - $45,900 = -$500A negative variance indicates that the actual costs were less than the budgeted costs, which means the variance is favorable. However, none of the provided options match this calculation directly, suggesting a possible misunderstanding in the calculation process or an error in the interpretation of the options. Given the options and the typical approach to calculating spending variances, it appears there may have been a mistake in the calculation or interpretation of the provided options. The correct approach involves comparing actual costs to budgeted or applied costs based on actual activity, but without the exact formula or additional context provided in the options, there's a discrepancy in the expected outcome.

Neptune Inc The Total Factory Overhead Spending Variance in April for Neptune