The total overhead variance is the difference between the

A) actual overhead costs and overhead costs applied based on standard hours allowed.
B) actual overhead costs and overhead costs applied based on actual hours.
C) overhead costs applied based on actual hours and overhead costs applied based on standard hours allowed.
D) the actual overhead costs and the standard direct labor costs.

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SERENA DESANTIS · Accepted Answer

Final Answer : A, Explanation :  The total overhead variance is calculated by subtracting the overhead costs applied based on standard hours allowed (sometimes called budgeted overhead) from the actual overhead costs incurred. This calculates the difference between what was budgeted and what was actually spent. Answer B is incorrect because it compares actual overhead costs with overhead costs applied based on actual hours, which doesn't make sense since the overhead rate is usually based on standard hours allowed, not actual hours worked. Answer C is incorrect because it compares two estimates of overhead costs, rather than actual costs. Answer D is incorrect because it compares two completely different types of costs (overhead vs. direct labor).

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