Question

Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $400,000, and direct labor costs to be $2,000,000. Actual overhead costs for the year totaled $380,000, and actual direct labor costs totaled $1,800,000. At year-end, the balance in the Factory Overhead account is a __________.

A. 17 $380,000 Debit balance.

B. $360,000 Debit balance

C. $20,000 Debit balance

Answer 1

Overhead absorption rate

= Budgeted overhead x 100

Budgeted direct labour cost

= $400,000 x 100

$2,000,000

= 20% of direct labour cost

Overhead applied

= 20% x $1,800,000

= $360,000

The balance in the factory overhead account is $360,000 debit

The correct answer is B

Step-by-step explanation:

In this case, we need to calculate the overhead application rate, which is the ratio of budgeted overhead to budgeted direct labour cost multiplied by 100. Overhead applied is calculated as overhead application rate multiplied by actual direct labour cost.