Figure 5-2. At the beginning of the year,Kyla Inc.estimated that overhead would be $880,000 and direct labor hours would be 220,000.At the end of the year,actual overhead was $920,600 and there were actually 230,000 direct labor hours.
Refer to Figure 5-2.What is the overhead variance?

Question

Quizplus · Accepted Answer

The overhead variance is calculated as the difference between actual overhead and applied overhead. Applied overhead is calculated using the predetermined overhead rate, which is estimated overhead divided by estimated direct labor hours. Here, the rate is $880,000 / 220,000 hours = $4 per hour. Applied overhead is $4 * 230,000 hours = $920,000. The actual overhead is $920,600. The variance is $920,600 - $920,000 = $600 underapplied.