The predetermined overhead rate for Zane Company is $5 comprised of a variable overhead rate of $3 and a fixed rate of $2. The amount of budgeted overhead costs at normal capacity of $150000 was divided by normal capacity of 30000 direct labor hours to arrive at the predetermined overhead rate of $5. Actual overhead for June was $8900 variable and $5400 fixed and 1500 units were produced. The direct labor standard is 2 hours per unit produced. The total overhead variance is
A) $1800 F.
B) $700 F.
C) $700 U.
D) $1800 U.

Question

Quizplus · Accepted Answer

The total overhead variance is calculated by comparing the actual overhead costs to the applied overhead based on the standard cost system. The applied overhead for 1500 units produced, at 2 hours per unit, is 3000 hours. At a predetermined rate of $5 per hour, the applied overhead is $15,000 ($5 * 3000 hours). The actual overhead is the sum of actual variable and fixed overheads, which is $8900 + $5400 = $14,300. The difference between the applied overhead ($15,000) and the actual overhead ($14,300) is $700, indicating a favorable variance since the actual costs were less than what was applied based on the standards.

The Predetermined Overhead Rate for Zane Company Is $5 Comprised