At the beginning of the year, Zinc Inc. estimated that overhead would be $115,000 and direct labor hours would be 23,000. At the end of the year, actual overhead was $175,900 and there were actually 35,000 direct labor hours.

What is the overhead variance?

a. $900 underapplied

b. $300 underapplied

c. $700 overapplied

d. $600 overapplied

e. $800

a. $ 900 underapplied

Explanation:

Based on the data provided we conclude that the factory overhead is applied on the basis of direct labour hours.

Determination of Overhead rate

Estimated overhead $ 115,000

Direct labour hours 23,000 hours

Overhead rate per direct labor hour is $ 115,000 / 23,000 = $ 5 per direct labor hour

Amount of applied overhead = Direct Labor hours * Overhead rate per hour

Applied Overhead = $ 5 * 35,000 $ 175,000

Actual Overhead $ 175,900

Underapplied Overhead $ (900)