Question

Victryl Company applies overhead based on direct labor hours. At the beginning of the year, Victryl estimates overhead to be $700,000, machine hours to be 200,000, and direct labor hours to be 35,000. During February, Victryl has 5,000 direct labor hours and 10,000 machine hours. If the actual overhead for February is $98,300, what is the overhead variance, and is it overapplied or underapplied?

Answer 1

The answer is: The overhead variance was $1,700 and it was overapplied

Step-by-step explanation:

Victryl's estimated overhead cost per labor hour was:

$700,000 / 35,000 = $20 per labor hour

If during February, Victryl had 5,000 direct labor hours, then its estimated cost should have been: $20 x 5,000 = $100,000 estimated overhead cost

The actual overhead cost was $98,300, which is $1,700 less than the estimated cost.