Jones Manufacturing incurred fixed overhead costs of $8,000 and variable overhead costs of $4,600 to produce 1,000 gallons of liquid fertilizer. It takes 2 hours of direct labor to produce 1 gallon of fertilizer. The standard hours allowed to produce 1,000 gallons of fertilizer is 2,000 hours. Predetermined overhead rate is $5/direct labor hour. What is the total overhead variance?

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Business

Holly Clay

5 September, 23:17

Jones Manufacturing incurred fixed overhead costs of $8,000 and variable overhead costs of $4,600 to produce 1,000 gallons of liquid fertilizer. It takes 2 hours of direct labor to produce 1 gallon of fertilizer. The standard hours allowed to produce 1,000 gallons of fertilizer is 2,000 hours. Predetermined overhead rate is $5/direct labor hour. What is the total overhead variance?

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Flint · Answer 1

The total overhead variance is $2,600 unfavorable

Explanation:

The computation of the total overhead variance is shown below:

= Fixed overhead cost + variable overhead cost - (produced gallon * direct labor hour * predetermined overhead rate)

= $8,000 + $4,600 - (1,000 * 2 * $5)

= $12,600 - $10,000

= $2,600 unfavorable

Since, standard cost is less than the actual overhead cost, so it has unfavorable variance.