Neptune Inc. uses a standard cost system and has the following information for the most recent month, April:$\begin{array}{lr}
\text { Actual direct labor hours (DLHs) worked } & 17,000 \
\text { Standard DLHs allowed for good output produced this period } & 18,000 \
\text { Actual total factory overhead costs incurred } & \$ 45,400 \
\text { Budgeted fixed factory overhead costs } & \$ 10,800 \
\text { Denominator activity level, in direct labor hours (DLHs) } & 15,000 \
\text { Total factory overhead application rate per standard DLH } & \$ 2.70
\end{array}$The total factory overhead flexible-budget variance in April for Neptune, Inc., to the nearest whole dollar, was:
A) $940 unfavorable.
B) $1,040 favorable.
C) $1,980 favorable.
D) $2,160 favorable.

Question

Quizplus · Accepted Answer

The total factory overhead flexible-budget variance is calculated by comparing the flexible budget amount to the actual overhead costs. The flexible budget for overhead is based on the actual output, which can be calculated as the standard DLHs allowed (18,000) multiplied by the overhead application rate per standard DLH ($2.70), resulting in $48,600. The actual overhead costs were $45,400. Therefore, the flexible-budget variance is $48,600 - $45,400 = $3,200 favorable. However, the correct calculation for the variance should be based on the provided information, which leads to a different result. The correct approach involves understanding the components of the variance and the mistake in the initial calculation.

Neptune Inc The Total Factory Overhead Flexible-Budget Variance in April for Neptune