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Elwood Company applies overhead based on machine hours. At the beginning of the year, Elwood estimates...

Elwood Company applies overhead based on machine hours. At the beginning of the year, Elwood estimates overhead to be $760,000, machine hours to be 200,000, and direct labor hours to be 40,000. During February, Elwood has 3,750 direct labor hours and 16,000 machine hours.

If the actual overhead for February is $58,300, what is the overhead variance, and is it overapplied or underapplied?

a.$12,950 overapplied

b.$2,500 overapplied

c.$2,500 underapplied

d.$600 overapplied

e.$12,950 underapplied

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Answer #1

Overhead variance = standard overhead - actual overhead

= (760000*16000/200000) - 58300

= $60800-58300

= $2500 Favorable

$2500 overapplied

Option b. is correct answer.

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