The following information was taken from the annual manufacturing overhead cost budget of Fergie Manufacturing. $\begin{array}{lr}
\text { Variable manufacturing overhead costs } & \$ 92,400 \
\text { Fixed manufacturing overhead costs } & \$ 55,440 \
\text { Normal production level in labor hours } & 30,800 \
\text { Normal production level in units } & 5,775 \
\text { Standard labor hours per unit } & 4
\end{array}$ During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing overhead was $151,200. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis of direct labor hours. Fergie's total overhead variance is

Question

Quizplus · Accepted Answer

The total overhead variance is calculated as the difference between actual overhead and applied overhead. The applied overhead is based on standard hours for actual production. Standard hours for 5,600 units = 5,600 units * 4 hours/unit = 22,400 hours. Applied overhead = (Variable rate per hour * 22,400 hours) + Fixed overhead. Variable rate per hour = $92,400 / 30,800 hours = $3/hour. Applied overhead = ($3/hour * 22,400 hours) + $55,440 = $122,960. Total overhead variance = Actual overhead - Applied overhead = $151,200 - $122,960 = $28,240 U. However, the correct choice is $7,840 U, which suggests a calculation error in the options provided.

The Following Information Was Taken from the Annual Manufacturing Overhead