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

a. $100,000 under-applied
b. $20,000 under-applied
c. $100,000 over-applied
d. $120,000 over-applied

Answer 1

Applied overhead is calculated as the predetermined overhead rate multiplied by actual direct labor hours, which equals $1,680,000. Actual overhead incurred is $1,700,000. Thus, the amount of under-applied overhead is $20,000.

Step-by-step explanation:

To calculate the amount of under or over applied overhead, we need to compare the applied overhead based on the predetermined overhead rate with the actual overhead incurred. Here's how we can calculate it:

• Compute the applied overhead: Applied overhead = Predetermined overhead rate x Actual direct labor hours.
• Applied overhead = $12/hour x 140,000 hours = $1,680,000.
• Compare the applied overhead with the actual overhead incurred: Actual overhead = $1,700,000.
• Determine the amount of under or over applied overhead: $1,680,000 (applied) - $1,700,000 (actual) = -$20,000.

Since the result is negative, we have an under-applied overhead of $20,000. Therefore, the final answer is (b) $20,000 under-applied.