Absorption and Variable Costing with Over- and Underapplied Overhead Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit) Direct materials (4 lbs. @ $1.50) Direct labor (0.5 hr. $18) Variable overhead (0.5 hr. @ $6) Fixed overhead (0.5 hr. @ $9) $6.00 9.00 3.00 4.50 $22.50 Total Selling and administrative costs: Variable $2 per unit $238,000 Fixed During the year, the company had the following activity: Units produced Units sold Unit selling price Direct labor hours worked Actual fixed overhead was $12,000 less than budgeted fixed overhead. Budgeted variable overhead was $5,000 less than the actual variable overhead. The company used an expected actual activity level of 12,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold Required 24,000 21,300 $36 12,000