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

question 27

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 worked 5,000 DLHs and incurred $16,500 of total factory overhead cost during May, including $6,800 for fixed factory overhead.
Under a three-variance breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance (to the nearest whole dollar) for May?

• A) N/A—this variance does not exist in a three-variance analysis of the total overhead variance.
• B) $300 favorable.
• C) $380 unfavorable.
• D) $480 unfavorable.
• E) $1,160 unfavorable.

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Definitions:

Alfalfa

A plant widely used for livestock feed due to its high nutritional content and also used as a cover crop for soil improvement.

Perfectly Elastic

Refers to a situation where a small change in price leads to an infinite change in quantity demanded or supplied.

Individual Firm's Demand Curve

The graph showing the quantity of a product that a firm is willing and able to sell at various prices, holding other factors constant.

Industry Supply

The total amount of a good or service that producers in a particular industry are willing and able to offer for sale at different price levels.