Victryl Company applies overhead based on direct labor hours.At the beginning of the year, Victryl estimates overhead to be $700,000, machine hours to be 200,000, and direct labor hours to be 35,000.During February, Victryl has 5,000 direct labor hours and 10,000 machine hours.
If the actual overhead for February is $98,300, what is the overhead variance, and is it overapplied or underapplied?
A) $1200 underapplied
B) $800 overapplied
C) $1,000 underapplied
D) $1,700 overapplied
E) $600 overapplied

Question

Victryl Company applies overhead based on direct labor hours.At the beginning of the year, Victryl estimates overhead to be $700,000, machine hours to be 200,000, and direct labor hours to be 35,000.During February, Victryl has 5,000 direct labor hours and 10,000 machine hours.  
If the actual overhead for February is $98,300, what is the overhead variance, and is it overapplied or underapplied?
A) $1200 underapplied
B) $800 overapplied
C) $1,000 underapplied
D) $1,700 overapplied
E) $600 overapplied

Quizplus · Accepted Answer

Predetermined Overhead Rate = $700,000 / 35,0000 hours = $20 per hour
Applied Overhead = Predetermined Overhead Rate × Actual Activity Level
Applied overhead = $20 per hour × 5,0000 direct labor hours = $100,000
Overhead Variance = Actual Overhead - Applied Overhead
Overhead Variance = $98,300 - $100,000 = $1,700 overapplied

Victryl Company Applies Overhead Based on Direct Labor Hours