Sheffield Company produces one product, a putter called PAR-putter. Sheffield uses a standard cost system and determines that it should take one hour of direct labor to produce one PAR-putter. The normal production capacity for the putter is 100,000 units per year. The total budgeted overhead at normal capacity is $\$ 532,000$ comprised of $\$ 216,000$ of variable costs and $\$ 316,000$ of fixed costs. Sheffield applies overhead on the basis of direct labor hours.

During the current year, the company produced 86,600 putters, paid employees for 89,100 direct labor hours, and incurred variable overhead costs of $\$ 188,000$ and fixed overhead costs of $\$ 316,000$.
Compute the total overhead variance. Identify whether the variance is favorable or unfavorable.

Total Overhead Variance
$\$$ $\square$ Unfavorable

Question

Sheffield Company produces one product, a putter called PAR-putter. Sheffield uses a standard cost system and determines that it should take one hour of direct labor to produce one PAR-putter. The normal production capacity for the putter is 100,000 units per year. The total budgeted overhead at normal capacity is $\$ 532,000$ comprised of $\$ 216,000$ of variable costs and $\$ 316,000$ of fixed costs. Sheffield applies overhead on the basis of direct labor hours.

During the current year, the company produced 86,600 putters, paid employees for 89,100 direct labor hours, and incurred variable overhead costs of $\$ 188,000$ and fixed overhead costs of $\$ 316,000$.
Compute the total overhead variance. Identify whether the variance is favorable or unfavorable.

Total Overhead Variance
$\$$ $\square$ Unfavorable

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ Determine the predetermined variable overhead rate: $$ \text{Predetermined Variable Overhead Rate} = \frac{\text{Total Budgeted Variable Overhead}}{\text{Normal Production Capacity in Direct Labor Hours}} = \frac{216,000}{100,000} = 2.16 \, \text{per hour} $$ ‖ ‖ step 2 ⋮ Determine the predetermined fixed overhead rate: $$ \text{Predetermined Fixed Overhead Rate} = \frac{\text{Total Budgeted Fixed Overhead}}{\text{Normal Production Capacity in Direct Labor Hours}} = \frac{316,000}{100,000} = 3.16 \, \text{per hour} $$ ‖ ‖ step 3 ⋮ Calculate the total predetermined overhead rate: $$ \text{Total Predetermined Overhead Rate} = \text{Predetermined Variable Overhead Rate} + \text{Predetermined Fixed Overhead Rate} = 2.16 + 3.16 = 5.32 \, \text{per hour} $$ ‖ ‖ step 4 ⋮ Calculate the applied overhead: $$ \text{Applied Overhead} = \text{Total Predetermined Overhead Rate} \times \text{Actual Direct Labor Hours} = 5.32 \times 89,100 = 474,612 $$ ‖ ‖ step 5 ⋮ Calculate the total actual overhead: $$ \text{Total Actual Overhead} = \text{Actual Variable Overhead} + \text{Actual Fixed Overhead} = 188,000 + 316,000 = 504,000 $$ ‖ ‖ step 6 ⋮ Calculate the total overhead variance: $$ \text{Total Overhead Variance} = \text{Total Actual Overhead} - \text{Applied Overhead} = 504,000 - 474,612 = 29,388 \, \text{Unfavorable} $$ ‖ ∻Answer∻ ⚹ $29,388$ Unfavorable ⚹ ∻Key Concept∻ ⚹Total Overhead Variance⚹ ∻Explanation∻ ⚹The total overhead variance is the difference between the actual overhead incurred and the applied overhead. In this case, the variance is unfavorable because the actual overhead costs were higher than the applied overhead.⚹◊What is the formula to calculate the total overhead variance in this scenario?⍭ Generate me a similar question◊

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