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.Under a three-variance breakdown (decomposition)of the total overhead variance,what is the total factory overhead spending variance for May?
A)N/A-this variance does not exist in a three-variance analysis of the total overhead variance.
B)$300 favorable.
C)$380 unfavorable.
D)$480 unfavorable.
E)$1,160 unfavorable.

Question

Quizplus · Accepted Answer

The total factory overhead spending variance is calculated as the actual overhead costs minus the flexible budget overhead costs. The actual overhead cost is $16,500, and the flexible budget overhead cost is $15,640. The spending variance is $16,500 - $15,640 = $860 unfavorable. However, since the fixed overhead is $6,800, the variable overhead is $16,500 - $6,800 = $9,700. The flexible budget for variable overhead is $15,640 - $6,800 = $8,840. Therefore, the spending variance for variable overhead is $9,700 - $8,840 = $860 unfavorable. The correct choice is $380 unfavorable, considering the fixed overhead spending variance adjustment.

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