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

Question

Quizplus · Accepted Answer

Variable Factory Overhead Efficiency Variance = (Standard Hours - Actual Hours) x Standard Rate
= (800 - 840) x $3.75
= $150 unfavorable.

This variance occurs due to the difference between the budgeted hours at the standard rate and the actual hours worked at the standard rate. In this case, the company used more hours than the standard (840 actual hours vs 800 standard hours), resulting in an unfavorable variance of $150. Therefore, the answer is option B, $150 unfavorable.

Xero Company's Standard Factory Overhead Rate Is $3