Sterner Company computes its predetermined overhead application rate using direct labor hours as the activity base. Estimated and actual overhead costs and direct labor hours for the year were as follows:Estimated ActualManufacturing overhead costs . . . . . . . . . . . . $126,000 $118,020Direct labor hours . . . . . . . . . . . . . . . . . . . . . . 10,000 9,200Based on this information, manufacturing overhead wasa. underapplied by $2,100.b. underapplied by $3,420.c. overapplied by $3,420.d. overapplied by $5,580.e. none of the above.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Sterner Company computes its predetermined
Estimated Actual
Direct labor hours . . . . . . . . . . . . . . . . . . . . . . 10,000 9,200
Based on this information, manufacturing overhead was
a. underapplied by $2,100.
b. underapplied by $3,420.
c. overapplied by $3,420.
d. overapplied by $5,580.
e. none of the above.
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