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.

Under a three-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for Zero Company in December (to the nearest whole dollar)?
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

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.

Under a three-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for Zero Company in December (to the nearest whole dollar) ?

Under a three-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for Zero Company in December (to the nearest whole dollar)?
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.

Quizplus · Accepted Answer

The total factory overhead spending variance is the difference between the actual factory overhead cost and the budgeted factory overhead cost. In this case, the actual factory overhead cost was $3,800 and the budgeted factory overhead cost was $3,150, so the total factory overhead spending variance is $3,800 - $3,150 = $650 unfavorable. However, since the company operated at 80% of capacity, the budgeted factory overhead cost should be adjusted to reflect the actual level of activity. The adjusted budgeted factory overhead cost is $3,150 x 80% = $2,520. Therefore, the total factory overhead spending variance is $3,800 - $2,520 = $1,280 unfavorable.

Zero Company's Standard Factory Overhead Rate Is $3