Answer (C) is correct . The total overhead variance is the difference between the actual overhead and applied (absorbed) overhead. Given that neither fixed nor variable overhead ? differed from budgeted amounts, the only variance was caused by under- or overabsorption of fixed overhead. The variable overhead rate does not vary with the capacity. The fixed overhead rate at 90% capacity is Given that the actual capacity achieved was 75%, and that 30,000 standard hours were allowed, $120,000 (30,000 × $4.00) of fixed overhead was applied. Thus, $24,000 ($144,000 FOH – $120,000) was underabsorbed.
Answer (A) is incorrect because The amount of $28,500 assumes a fixed overhead application rate of $5.75.
Answer (B) is incorrect because The amount of $28,500 assumes a fixed overhead application rate of $5.75. Also, the variance is not overabsorbed.
Answer (D) is incorrect because The overhead variance for the year is $24,000 underabsorbed, not overabsorbed.
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Anderson operated at 75% of capacity during the year. However, Anderson applied factory overhead based on 90% of capacity. If actual factory overhead was equal to the factory overhead budgeted for 75% of capacity, what is the amount of overhead variance for the year?