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 factory overhead efficiency variance (to the nearest whole dollar) for Gerhan Company in May, under the assumption that the company uses a two-variance breakdown (decomposition) of the total overhead variance?
A) N/A—this variance does not exist under a two-variance breakdown of the total overhead variance.
B) $180 unfavorable.
C) $300 favorable.
D) $480 unfavorable.
E) $680 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 factory overhead efficiency variance (to the nearest whole dollar) for Gerhan Company in May, under the assumption that the company uses a two-variance breakdown (decomposition) of the total overhead variance?

What is the factory overhead efficiency variance (to the nearest whole dollar) for Gerhan Company in May, under the assumption that the company uses a two-variance breakdown (decomposition) of the total overhead variance?
A) N/A—this variance does not exist under a two-variance breakdown of the total overhead variance.
B) $180 unfavorable.
C) $300 favorable.
D) $480 unfavorable.
E) $680 unfavorable.

Quizplus · Accepted Answer

In a two-variance breakdown of the total overhead variance, only the spending variance and the volume variance are calculated. The efficiency variance is not calculated separately.

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