Question

Overhead Variance (Over- or Underapplied), Closing to Cost of Goods Sold At the end of the year, Estes Company provided the following actual information: Overhead $412,600 Direct labor cost 532,000 Estes uses normal costing and applies overhead at the rate of 75% of direct labor cost. At the end of the year, Cost of Goods Sold (before adjusting for any overhead variance) was $1,670,000.Required:

1. Calculate the overhead variance for the year. $2. Dispose of the overhead variance by adjusting Cost of Goods Sold.

Answer 1

1.

$13,600 unfavorable

2.

$1,683,600

Step-by-step explanation:

Overhead variance is difference between the budgeted and actual values of the overhead incurred by a company.

Applied Overhead is the overhead value calculated by multiplying the actual activity and budgeted applied rate.

Applied Overheads = $532,000 x 75% = $399,000

Actual Overheads = $412,600

Overheads Variance = Applied Overheads - Actual Overheads

Overheads Variance = $399,000 - $412,600 = -$13,600

As actual overheads are incurred more than the applied overhead, so the variance is unfavorable.

$13,600 unfavorable

2.

As the overhead is under-applied and it need to be adjusted and added in the cost of goods sold.

Cost of Goods sold = $1,670,000

Adjusted cost of goods sold = $1,670,000 + $13,600

Adjusted cost of goods sold = $1,683,600