Question

During the current year, Esterhazy, Inc. estimated manufacturing overhead for the year to be $896,000. The company uses direct labor hours to apply manufacturing overhead to Work-in-Process. The budgeted direct labor hours for the current year totaled 80,000 hours and the actual hours worked were 82,000. The actual overhead incurred during the year was $924,000. What is the amount of overapplied or underapplied overhead?

Answer 1

Overheads are over-applied by $5,600

Step-by-step explanation:

Company's expected manufacturing overhead = $896,000

Budgeted labor hours = 80,000 hours

Rate per hour = $896,000/80,000 = $11.2 per labor hour

Actual overheads incurred = $924,000

Actual labor hours = 82,000

Actual rate per hour =$924,000/82,000 = $11.268

Actual overheads at budgeted rate for actual hours = 82,000 X $11.2 = $918,400

Since actual overheads are higher by $924,000 - $918,400 = $5,600

Overheads are over-applied by $5,600