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
A)$1,680 U.
B)$6,160 U.
C)$7,840 U.
D)$22,400 U.

Question

Quizplus · Accepted Answer

The total overhead variance is calculated as the difference between actual overhead and applied overhead. Applied overhead is calculated using the standard rate based on normal production levels. The standard rate is calculated as total budgeted overhead ($92,400 + $55,440) divided by normal labor hours (30,800), which equals $4.80 per hour. Applied overhead for actual hours worked (18,340) is $88,032. The actual overhead is $151,200. The variance is $151,200 - $88,032 = $63,168 U. However, the question asks for the total variance, which includes the fixed overhead variance. Since actual fixed costs equal budgeted fixed costs, the fixed overhead variance is zero. Therefore, the total overhead variance is $63,168 - $55,440 (fixed overhead) = $7,840 U.

The Following Information Was Taken from the Annual Manufacturing Overhead