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? $2,000U. $5,400U. $10,600U. $2,600U.

Answer 1

Jone Manufacturing

Total Overhead Variance = $2,000U.

Step-by-step explanation:

Variance is the difference between budgeted and actual expense. It is favorable when the actual is less than the budgeted amount. It is unfavorable when the actual is more than the budgeted amount. It is neither favorable nor unfavorable when the actual equals the budgeted amount.

Variance analysis as a budgeting tool is used to evaluate the performance of management in managing costs, relative to the activity levels.

In Jones Manufacturing, actual and budgeted costs are calculated as follows:

Actual costs:

Fixed overhead = $8,000

Variable overhead = $4,600

Total = $12,600

Budget costs:

Fixed overhead = $10,000 (2,000 hours x $5)

Variable overhead = $4,600

Total = $14,600

Variance = budgeted overhead minus actual overhead

= $14,600 - $12,600 = $2,000U