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

question 158

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 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.

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Definitions:

Terminating Decimal

A decimal number that has a finite number of digits after the decimal point.

Decimal Equivalent

A numerical representation of a fraction where the denominator is a power of ten, expressing fractions in a decimal format.

Percent Equivalent

A value expressed as a percentage that represents the equivalence of two ratios or a fraction to a percentage.

Five-figure Accuracy

A level of precision in numerical or quantitative information that includes five significant digits.