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 the use of a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead efficiency variance for Zero Company in December (to the nearest whole dollar)?
A) $90 unfavorable.
B) $150 unfavorable.
C) $225 favorable.
D) $425 unfavorable.
E) $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 the use of a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead efficiency variance for Zero Company in December (to the nearest whole dollar) ?

Assuming the use of a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead efficiency variance for Zero Company in December (to the nearest whole dollar)?
A) $90 unfavorable.
B) $150 unfavorable.
C) $225 favorable.
D) $425 unfavorable.
E) $650 unfavorable.

Quizplus · Accepted Answer

Variable factory overhead efficiency variance is calculated as the difference between the actual hours worked and the standard hours allowed, multiplied by the standard rate per hour.

In December, actual DLHs were 840, whereas standard DLHs were 800. Therefore, the variable factory overhead efficiency variance is:

(840 DLHs - 800 DLHs) x $3.75 per DLH = $150 unfavorable.

Therefore, the correct answer is B, $150 unfavorable.

Zero Company's Standard Factory Overhead Rate Is $3