Gerhan Company's flexible budget for the units actually manufactured in May shows $15,640 of total factory overhead;this output level represents 70% of available capacity.During May the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH),based on a denominator volume level of 6,120 DLHs,which represents 90% of available capacity.The company spent 5,000 DLHs and incurred $16,500 of total factory overhead cost during May,including $6,800 for fixed factory overhead.
What is the total factory overhead flexible-budget variance for May?

Question

Quizplus · Accepted Answer

First, we need to calculate the flexible budget for actual production level which is 5,000 DLHs:

Flexible budget for 5,000 DLHs = Total flexible budget / Denominator volume level * Actual volume level
Flexible budget for 5,000 DLHs = $15,640 / 6,120 * 5,000
Flexible budget for 5,000 DLHs = $12,825.16

Next, we can calculate the total overhead variance:

Total overhead variance = Actual overhead - Flexible budget overhead
Total overhead variance = $16,500 - $12,825.16
Total overhead variance = $3,674.84 unfavorable

Thus, the best choice is C) $860 unfavorable because the question is asking for the flexible budget variance, which is the difference between actual overhead and the flexible budget for the actual production level.

Gerhan Company's Flexible Budget for the Units Actually Manufactured in May