Question

Before the year began, Johnson Manufacturing estimated that manufacturing overhead for the year would be $160,000 and that 12,000 direct labor hours would be worked. Actual results for the year included the following: Actual manufacturing overhead cost $175,000 Actual direct labor hours 15,000. If the company allocates manufacturing overhead based on direct labor hours, the manufacturing overhead for the year would have been: A. $15,000 overallocated. B. $15,000 underallocated. C. $25,000 overallocated. D. $25,000 underallocated.

Answer 1

C. $25,000 overallocated.

Step-by-step explanation:

`(Cost\: Of \:Manufacturing \:Overhead)/(Cost \:Driver)= Overhead \:Rate`

160,000 / 12,000 = 13.33333333 = 13 + 1/3 (to avoid rounding issues)

Applied Overhead

`rate * actual \: labor \: hours = applied \: overhead`

(13 + 1/3) * 15,000 = 200,000

Actual Overhead (175,000)

Overapplied for 25,000

Remember that the overhead is done by distributing the estimated overhead cost over a cost driver, which usually is direct labor or machine hours