Zero Company's Standard Factory Overhead Rate Is $3

question 10

Multiple Choice

Zero Company's standard factory overhead rate is $3.75 per direct labor hour (DLH) , calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is $3,150, of which $1,350 is fixed overhead. For December, the actual factory overhead cost was $3,800 for 840 actual DLHs, of which $1,300 was for fixed factory overhead.

Assuming the use of a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead efficiency variance for Zero Company in December (to the nearest whole dollar) ?

• A) $90 unfavorable.
• B) $150 unfavorable.
• C) $225 favorable.
• D) $425 unfavorable.
• E) $650 unfavorable.

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Definitions:

Operating Activities

These activities generate cash inflows and outflows related to revenue and expense transactions that affect net income.

Operating Activity

Tasks and transactions related to the core business functions of an organization, such as selling products or services and manufacturing.

Cash Received

The total amount of cash a company collects from its various sources, including operations, financing, and investing activities, during a period.

Indirect Method

A method of computing the net cash provided by operating activities that starts with net income and adjusts it to a cash basis.