Gerhan Company's flexible budget for the units 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 used 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 (to the nearest whole dollar) for Gerhan Company in May?
A) $380 unfavorable.
B) $680 unfavorable.
C) $860 unfavorable.
D) $1,160 unfavorable.
E) $1,360 unfavorable.

Question

Gerhan Company's flexible budget for the units 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 used 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 (to the nearest whole dollar) for Gerhan Company in May?

What is the total factory overhead flexible-budget variance (to the nearest whole dollar) for Gerhan Company in May?
A) $380 unfavorable.
B) $680 unfavorable.
C) $860 unfavorable.
D) $1,160 unfavorable.
E) $1,360 unfavorable.

Quizplus · Accepted Answer

The total factory overhead flexible-budget variance is calculated as the difference between the actual overhead costs and the flexible budget for the actual level of activity. The flexible budget for the actual level of activity (5,000 DLHs) can be calculated based on the information given. The flexible budget at 70% capacity is $15,640, and at 90% capacity, the denominator volume level of DLHs is 6,120. Since 5,000 DLHs were used, we first find the per DLH rate at 70% capacity: $15,640 / (6120 DLHs * 70/90) = $3 per DLH. Then, for 5,000 DLHs, the flexible budget amount is 5,000 DLHs * $3/DLH = $15,000. The actual overhead cost was $16,500, so the variance is $16,500 - $15,000 = $1,500 unfavorable. However, since none of the provided options match this calculation, it seems there might have been a mistake in the calculation process. Given the options, the correct approach to find the variance closely matching the options would involve directly comparing the given flexible budget to the actual costs or recalculating based on the correct interpretation of the given data. Without the exact calculation matching the options, the correct answer based on the provided options cannot be determined accurately from the explanation given. This indicates a need to reassess the calculation or the interpretation of the provided data.

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