Loganville Resources has variable overhead costs of $150,240 and fixed overhead

Question

Loganville Resources has variable overhead costs of $150,240 and fixed overhead costs of $145,600. They made 24,000 units that used 62,400 direct labor hours. Loganville allows 2.5 labor hours per unit with a standard overhead rate of $4.60 per labor hour. Loganville reported a total overhead variance of $11,040 U. What did they do wrong?

A : They used actual overhead costs as billed rather than calculated overhead costs based on direct labor hours worked.

B : They used the actual direct labor hours to calculate overhead applied rather than standard hours allowed.

C : They calculated actual overhead costs based on actual direct labor hours used rather than actual overhead costs.

D : They used standard hours allowed to calculate overhead applied rather than actual direct labor hours.

Explanation / Answer

Answer b. They used the actual direct labor hours to calculate overhead applied rather than standard hours allowed. Overhead Applied = 62400 Lab Hrs (Actual Hrs) X $4.60 - $287,040 And caluclated the ovrehead variance form it. The correct calculation of Total Overhead Variance is Total Overhead Variance = (24000 Units X 2.5 Lab Hrs X $4.60 ) - (150240 +145600) Total Overhead Variance = $19840 (U)

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