Question

Elwood Company applies overhead based on machine hours. At the beginning of the year, Elwood estimates overhead to be $760,000, machine hours to be 200,000, and direct labor hours to be 40,000. During February, Elwood has 3,750 direct labor hours and 16,000 machine hours. If the actual overhead for February is $58,300, what is the overhead variance, and is it overapplied or underapplied?

Answer 1

Overhead variance is $ 2,500 Overapplied

Step-by-step explanation:

Computation of applied overhead rate based on machine hours

Estimated Overhead $ 760,000

Estimated machine hours 200,000 hours

Overhead Rate per machine hour = $ 760,000 . 200,000 hours = $ 3,80

Actual Machine hours for February 16.000

Applied overhead based on machine hours $ 3.80 * 16,000 = $ 60,800

Actual overhead for February $ 58,300

Overhead variance - Over applied $ 2,500