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Overhead Variance (Over- or Underapplied), Closing to Cost of Goods Sold At the end of the...

Overhead Variance (Over- or Underapplied), Closing to Cost of Goods Sold At the end of the year, Estes Company provided the following actual information: Overhead $412,600 Direct labor cost 532,000 Estes uses normal costing and applies overhead at the rate of 75% of direct labor cost. At the end of the year, Cost of Goods Sold (before adjusting for any overhead variance) was $1,670,000.

Required: 1. Calculate the overhead variance for the year. $

2. Dispose of the overhead variance by adjusting Cost of Goods Sold.

Adjusted COGS $

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Answer #1

Solution 1:

Overhead variance = Overhead applied - Actual overhead

= ($532,000*75%) - $412,600 = $13,600 unfavorable

Solution 2:

Adjusted cost of goods sold = Unadjusted cost of goods sold + Underapplied overhead

= $1.670,000 + $13,600 = $1,683,600

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