The overhead variance is the difference between:

• A. Budgeted overhead and actual direct materials used
• B. Actual overhead incurred and overhead applied to production
• C. Estimated overhead and actual sales revenue
• D. Standard cost and actual cost of direct labor

Answer: (B)

Verified step by step guidance

1. Understand the concept of overhead variance: Overhead variance is the difference between the actual overhead incurred and the overhead applied to production. It helps assess how well a company is managing its overhead costs.
2. Identify the components of overhead variance: The two key components are (1) actual overhead incurred, which represents the real costs incurred during production, and (2) overhead applied to production, which is the estimated overhead allocated to production based on a predetermined rate.
3. Clarify the incorrect options: Budgeted overhead and actual direct materials used are unrelated to overhead variance. Similarly, estimated overhead and actual sales revenue, as well as standard cost and actual cost of direct labor, do not pertain to overhead variance calculations.
4. Relate overhead variance to production: Overhead variance is specifically tied to production activities and is calculated to ensure that overhead costs are being applied accurately and efficiently.
5. Summarize the correct answer: The overhead variance is the difference between actual overhead incurred and overhead applied to production, as this reflects the true variance in overhead costs during the production process.