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 based on the estimated overhead and estimated direct labor hours: $620,000 / 40,000 hours = $15.50 per direct labor hour. For February, the applied overhead is 4,200 hours * $15.50 = $65,100. The actual overhead is $64,700. Therefore, the overhead variance is $65,100 - $64,700 = $400 overapplied.