Question

In October, Novak Company reports 20,100 actual direct labor hours, and it incurs $198,000 of manufacturing overhead costs. Standard hours allowed for the work done is 22,000 hours. The predetermined overhead rate is $9.10 per direct labor hour. In addition, the flexible manufacturing overhead budget shows that budgeted costs are $7.40 variable per direct labor hour and $42,400 fixed. Compute the overhead controllable variance.

Answer 1

The answer is $7,200U

Step-by-step explanation:

The formula for computing the overhead controllable variance is:

Actual overhead - budgeted overhead

We need to first calculate the budgeted overhead from the question.

Budgeted overhead = (budgeted cost x standard hours) + fixed labor cost

($7.40 x 22,000 hours) + $42,400

= $205,200

Actual overhead incurred is $198,000

Therefore we have:

$198,000 - $205,200

= $7,200U

The U means unfavorable, meaning actual overhead incurred is less than budgeted overhead