The predetermined overhead rate for Ellis Company is $10, comprised of a variabl

Question

The predetermined overhead rate for Ellis Company is $10, comprised of a variable overhead rate of $6 and a fixed rate of $4. The amount of budgeted overhead costs at normal capacity of $300,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $10. Actual overhead for July was $19,000 variable and $12,100 fixed, and standard hours allowed for the product produced in July was 3,000 hours. The total overhead variance is A : $6,100 U. B : $1,100 U. C : $500 U. D : $1,100 F.

Explanation / Answer

Variabe overhead Variance=Budget overhead-Actual Overhead=SR*SH-AQ*AH=3,000*$6-$19,000

=$18,000-$19,000=-$1,000-U

Fixed Overhead Variance=Budget overhead-Actual Overhead=3,000*$4-$12,100=-$100-U

so

Total Overhead variance=Variable overhead variance+Fixed overhead variance=-$1,000-$100=-$1,100-U

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