Question

Fossil Manufacturing uses a predetermined overhead rate of $19.80 per direct labor-hour. This predetermined rate was based on 13,000 estimated direct-labor-hours and $257,400 of estimated total manufacturing overhead. The company incurred actual manufacturing overhead costs of $254,000 and 12,500 direct labor-hours.

a) Overhead Overrun
b) Overhead Underrun
c) Overhead Absorption
d) Overhead Variance

Answer 1

Predetermined overhead rate is used to calculate applied overhead. By comparing the applied overhead to the actual overhead costs, we can determine the overhead variance. In this case, the variance is $6,500.

Step-by-step explanation:

The question is related to overhead cost and its variance. In this case, the predetermined overhead rate is $19.80 per direct labor-hour. However, the company incurred actual manufacturing overhead costs of $254,000 and used 12,500 direct labor-hours.

To determine the overhead variance, we need to calculate the overhead applied and compare it to the actual overhead costs. The overhead applied is calculated by multiplying the actual direct labor-hours by the predetermined overhead rate ($19.80) - so, 12,500 DLH x $19.80 = $247,500.

The overhead variance is calculated by subtracting the overhead applied from the actual overhead costs: $254,000 - $247,500 = $6,500. Based on this calculation, the correct answer is Overhead Variance (d).