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?

$650 unfavorable.

$150 unfavorable.

$225 favorable.

$425 unfavorable.

$90 unfavorable.

factory overhead efficiency variance = $90  

so correct option is $90 unfavorable

Explanation:

given data

overhead rate = $3.75 per direct labor hour

90% capacity = 900 standard direct labor hour

80%  capacity =  800 standard

factory overhead 80% capacity = $3,150

fixed overhead = $1,350

actual factory overhead cost = $3,800

fixed factory overhead = $1300

to find out

variable factory overhead efficiency variance

solution

we know that variance is difference between the actual costs and the budgeted cost

now we get here standard variable overhead rate  at 80% capacity that is express as

Standard variable overhead rate = ( Budgeted factory overhead - Fixed overhead ) ÷  Direct labor hours    .......................1

put here value we get  

Standard variable overhead rate =

Standard variable overhead rate = $2.25

and

now we get here factory overhead efficiency variance that is express as

factory overhead efficiency variance = Standard variable overhead rate × (actual direct labor hours - Budgeted direct labor hours )   ...................2

put here value we get

factory overhead efficiency variance = $2.25 × ( 840 - 800 )

factory overhead efficiency variance = $90

and actual cost is greater than the budgeted cost

so correct option is $90 unfavorable

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

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