Question

Monty Company, a labor-intensive manufacturer, compiled the following data for the current period: Budgeted Manufacturing Overhead 651,000, Budgeted Direct Labor Hours 200,000 hours, Budgeted Direct Labor Cost310,000, Budgeted Machine Hours 100,000 machine hours. Actual Manufacturing Overhead incurred 535,000, Actual Direct Labor Hours used 150,000 hours, Actual Direct Labor Cost incurred335,000. Assuming that Monty Company uses direct labor cost as a cost driver, determine the amount of overapplied or underapplied overhead for the current period.

Answer 1

To determine the amount of overapplied or underapplied overhead, calculate the predetermined overhead rate by dividing the budgeted manufacturing overhead by the budgeted cost driver. Then, compare it to the actual manufacturing overhead incurred.

Step-by-step explanation:

To determine the amount of overapplied or underapplied overhead, we need to calculate the predetermined overhead rate and then compare it to the actual manufacturing overhead incurred. The predetermined overhead rate is calculated by dividing the budgeted manufacturing overhead by the budgeted cost driver. In this case, the cost driver is the budgeted direct labor cost. The predetermined overhead rate is $651,000 / $310,000 = $2.10 per dollar of direct labor cost.

The overhead applied would be the actual direct labor cost multiplied by the predetermined overhead rate: $335,000 x $2.10 = $703,500. The difference between the actual manufacturing overhead incurred and the overhead applied gives us the amount of overapplied or underapplied overhead. In this case, it is $535,000 - $703,500 = -$168,500, which means there is an underapplied overhead of $168,500.