Figure 5-1. Morrow Company applies overhead based on direct labor hours.At the beginning of the year,Morrow estimates overhead to be $620,000,machine hours to be 180,000,and direct labor hours to be 40,000.During February,Morrow has 4,200 direct labor hours and 8,000 machine hours.
Refer to Figure 5-1.If the actual overhead for February is $64,700,what is the overhead variance and is it overapplied or underapplied?

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as follows:
$620,000 / 40,000 direct labor hours = $15.50 per direct labor hour

In February, Morrow incurs 4,200 direct labor hours, so the applied overhead is:
4,200 direct labor hours x $15.50 per direct labor hour = $65,100

The overhead variance is calculated as follows:
Actual overhead - Applied overhead
$64,700 - $65,100 = $400 underapplied

Therefore, the best choice is D, $400 overapplied, which is incorrect.