Question

Jones Manufacturing incurred fixed overhead costs of $8,000 and variable overhead costs of $4,600 to produce 1,000 gallons of liquid fertilizer. It takes 2 hours of direct labor to produce 1 gallon of fertilizer. The standard hours allowed to produce 1,000 gallons of fertilizer is 2,000 hours. Predetermined overhead rate is $5/direct labor hour. What is the total overhead variance?

Answer 1

The total overhead variance is $2,600 unfavorable

Step-by-step explanation:

The computation of the total overhead variance is shown below:

= Fixed overhead cost + variable overhead cost - (produced gallon × direct labor hour × predetermined overhead rate)

= $8,000 + $4,600 - (1,000 × 2 × $5)

= $12,600 - $10,000

= $2,600 unfavorable

Since, standard cost is less than the actual overhead cost, so it has unfavorable variance.