Answer to Question #65012 in Economics for afzal khan

Question

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.

Answer 1

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.