Question

1. Gerhan Company's flexible budget for the units manufactured in May shows $15,720 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 per direct labor hour (DLH), based on a denominator volume level of 5,850 DLHs, which represents 90% of available capacity. The company used 5,000 DLHs and incurred $16,000 of total factory overhead cost during May, including $9,900 for fixed factory overhead.

What is the variable factory overhead spending variance (to the nearest whole dollar) in May, assuming Gerhan uses a four-variance breakdown (decomposition) of the total overhead variance? (Round your intermediate calculation to 2 decimal places.)

Multiple Choice

• $1,130 unfavorable.

• $950 favorable.

• $1,030 unfavorable.

• N/A—this variance is not defined under the four-way breakdown of the total OVH variance.

• $830 unfavorable.

2..Gerhan Company's flexible budget for the units manufactured in May shows $15,610 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 6,000 DLHs and incurred $18,500 of total factory overhead cost during May, including $6,700 for fixed factory overhead.

What is the fixed factory overhead spending variance (to the nearest whole dollar) in December for Gerhan Company? (Round your intermediate calculation to 2 decimal places.)

Multiple Choice

• $502 unfavorable.

• $702 unfavorable.

• $0.

• $322 favorable.

• $202 unfavorable.

3. Bluecap Co. uses a standard cost system and flexible budgets for control purposes. The following budgeted information pertains to 2019:

Denominator volume—number of units		8,000
Denominator volume—percent of capacity		80	%
Denominator volume—standard direct labor hours (DLHs)		24,000
Budgeted variable factory overhead cost at denominator volume	$	103,200
Total standard factory overhead rate per DLH	$	15.10

During 2019, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2020 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs.

The total factory overhead spending variance in 2019 (to the nearest whole dollar), based on a three-variance breakdown (decomposition) of the total overhead variance for Bluecap Co., was:

Multiple Choice

• $17,440 unfavorable.

• $11,440 unfavorable.

• $3,200 favorable.

• $15,040 favorable.

• $17,280 favorable.

4. Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2.0 hrs. @ $5.00/hr.) = $10.00; overhead (2.0 hrs. @ $2.50/hr.) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past month show total overhead costs of $225,000, total fixed overhead of $123,000, 85,000 hours worked, and 40,000 units produced.

The fixed overhead production volume variance for Megan, Inc. for the past month (to the nearest whole dollar) was:

Multiple Choice

• Cannot be determined without additional information.

• $0.

• $5,000 unfavorable.

• $3,000 unfavorable.

• $20,000 unfavorable.

Answer 1

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Answer 1

Total budgeted OH @ 90% capacity (the denominator volume level)=5,850 DLHs x $3.00/DLH = $17,550.

Total budgeted OH @ 70% capacity = $15,720 (given)

Change in budgeted OH dollars, 90% vs. 70% of capacity = $17,550 -$15,720 = $ 1,830.

If 5,850 hours = 90% capacity, then [(5850/0.9) x 0.7] = 4,550 hours at 70% capacity.

Change in budgeted OH hours from 90% capacity to 70% capacity = 5,850 -4,550 = 1,300 hours.

$ 1,830 change in dollars/1,300 change in hours = VOH rate $ 1.41/DLH.

VOH applied= 5,000 DLH * VOH rate $ 1.41/ DLH= $ 7,050

Actual VOH= $ 16,000- $ 9,900 FOH= $ 6,100.

Favorable VOH spending variance is $ 7,050- $ 6,100= $ 950.

Answer is $ 950 favorable.

Answer 2

Total budgeted OH @ 90% capacity (the denominator volume level)=6,120 DLHs x $3.00/DLH = $18,360.

Total budgeted OH @ 70% capacity = $15,610 (given)

Change in budgeted OH dollars, 90% vs. 70% of capacity = $18,360 -$15,610 = $ 2,750.

If 6,120 hours = 90% capacity, then [(6120/0.9) x 0.7] = 4,760 hours at 70% capacity.

Change in budgeted OH hours from 90% capacity to 70% capacity = 6,120 -4,760 = 1,360 hours.

$ 2,750 change in dollars/1,360 change in hours = VOH rate $ 2.02/DLH.

Total OH rate (given) = $3/DLH; Total OVH rate -VOH rate = Fixed OH rate = $ .98/DLH.

FOH applied= 6,120 DLH * FOH rate $ 0.98/ DLH= $ 5,998

Unfavorable FOH spending variance is $ 6,700- $ 5,998= $ 702.

Answer is $ 950 favorable.

Answer 3

$11,440 unfavorable.

Answer 4

$3,000 unfavorable.