Question

The predetermined overhead rate for Weed-B-Gone is $8, comprised of a variable overhead rate of $5 and a fixed rate of $3. The amount of budgeted overhead costs at normal capacity of $240,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $8. Actual overhead for June was $15,800 variable and $9,100 fixed, and standard hours allowed for the product produced in June was 3,000 hours. The total overhead variance is:

A. $900 U.

B. $900 F.

C. $4,900 F.

D. $4,900 U.

Answer 1

The answer is $A. $900 U.

Step-by-step explanation:

We have the: Total overhead variance = Overhead applied - Actual overhead in which:

+ Overhead applied = Standard hours x Overhead application rate = 3,000 x 8 = $24,000;

+ Actual overhead = Variable overhead + fixed overhead = 15,800 + 9,100 = $24,900

=> Total overhead variance = Overhead applied - Actual overhead = 24,000 - 24,900 = 900 Unfavorable as the actual overhead is bigger than the overhead applied ( planned cost is lower than actual cost incurred).

So, the answer is A.