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

question 111

Multiple Choice

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 of fixed factory overhead.

What is the fixed overhead production-volume variance (to the nearest whole dollar) for Gerhan Company in May?

• A) $180 unfavorable.
• B) $380 unfavorable.
• C) $680 unfavorable.
• D) $860 unfavorable.
• E) $1,360 unfavorable.

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Definitions:

Efficiency

The ability to accomplish a task or job with a minimum expenditure of time and resources.

Standardization of Work Processes

The practice of establishing uniform procedures and criteria for tasks and operations within an organization to increase efficiency and consistency.

Direct Supervision

A management style where a supervisor closely oversees and controls the work of their subordinates.

Routine Tasks

Repetitive and predictable activities that are part of an individual’s daily work responsibilities.