Answer to Question #65012 in Other Economics for afzal khan
At the commencement of the financial year a business estimated that their overhead would be $720,000 and their direct labour costs would be $1.44 million.
At the end of the financial year the actual data reveals that the overhead was $770,000. Direct labour cost was calculated to be $1.54 million.
The business uses normal costing and applies overhead on the basis of direct labour cost. The cost of goods sold before making adjustments for any overhead variance is $856,000.
Calculate the overhead variance for the year and dispose of the overhead variance by adjusting the costs of goods sold.
The overhead variance for the year is the difference between actual variance and estimated overhead. So, in our case the overhead variance for the year is 770,000 - 720,000 = $50,000.