Gerhan Company\'s flexible budget for the units actually manufactured in May sho

Question

Gerhan Company's flexible budget for the units actually manufactured in May shows $16,642 of total factory overhead; this output level represents 73.00% of available capacity. During May the company applied overhead to production at the rate of $3.20 per direct labor hour (DLH), based on a denominator volume level of 6,441 DLHs, which represents 93.00% of available capacity. The company spent 5,200 DLHs and incurred $17,410 of total factory overhead cost during May, including $7,180 for fixed factory overhead. What is the factory overhead efficiency variance for May under the assumption that Gerhan uses a four-variance breakdown (decomposition) of the total overhead variance? Gerhan Company's flexible budget for the units actually manufactured in May shows $16,642 of total factory overhead; this output level represents 73.00% of available capacity. During May the company applied overhead to production at the rate of $3.20 per direct labor hour (DLH), based on a denominator volume level of 6,441 DLHs, which represents 93.00% of available capacity. The company spent 5,200 DLHs and incurred $17,410 of total factory overhead cost during May, including $7,180 for fixed factory overhead. What is the factory overhead efficiency variance for May under the assumption that Gerhan uses a four-variance breakdown (decomposition) of the total overhead variance?

Explanation / Answer

Now in May standard cost of $16642 was on 73% level activity so hours will be

6441/93%*73%= 5056 hours

=( 5056-5200)*1.97= $283 Unfavourable

Actual hours 5200 Total factory overhead 17410 Fixed Overhead 7180 Variable Overhead 10230 Actual variable rate 1.97 SR for total factory overhead 3.2 Standard hours at 90% capacity 6441 Standard cost for total factory overhead 20611.2 Fixed Overhead 7180 Standard variable Overhead 13431.2 Standard Variable Overhear rate 2.09

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