Question

during 2007, henderson company applies overhead using a job order costing system using a rate of $12 per direct labor hours. estimated direct labor hours for the year were 150,000, estimated overhead for the year was $1,800,000. actual direct labor hours for 2007 were 140,000 and actual overhead was $1,700,000. what is the amount of under or over applied overhead for the year?

Answer 1

The Henderson Company has underapplied overhead of $20,000 for the year 2007. This is determined by subtracting the applied overhead of $1,680,000 (based on the actual direct labor hours and the predetermined rate) from the actual overhead of $1,700,000.

Step-by-step explanation:

To calculate the amount of overhead applied using the job order costing system, multiply the actual direct labor hours by the predetermined overhead rate. Then, compare the applied overhead to the actual overhead costs to determine if there was under or overapplied overhead.

Applied Overhead = Predetermined Overhead Rate x Actual Direct Labor Hours

Actual Direct Labor Hours for 2007 = 140,000 hours
Predetermined Overhead Rate = $12 per direct labor hour
Applied Overhead = 140,000 hours x $12/hour = $1,680,000

Actual Overhead for 2007 = $1,700,000

Since the applied overhead is less than the actual overhead, we have underapplied overhead. To find the amount:

Underapplied Overhead = Actual Overhead - Applied Overhead

Underapplied Overhead = $1,700,000 - $1,680,000 = $20,000

The Henderson Company has an underapplied overhead of $20,000 for the year 2007.