Question

Manufacturing overhead is applied on a basis of 20 per direct labor hour. Assume that overapplied or underapplied manufacturing overhead is closed to Cost of Goods Sold. If the actual manufacturing overhead incurred is15,000 and the actual direct labor hours worked is 800, what is the amount of overapplied or underapplied manufacturing overhead?

1) $5,000 overapplied
2) $5,000 underapplied
3) $10,000 overapplied
4) $10,000 underapplied

Answer 1

The amount of underapplied manufacturing overhead is $5,000.

Step-by-step explanation:

To calculate the amount of overapplied or underapplied manufacturing overhead, we can use the formula:

Applied Manufacturing Overhead = Direct Labor Hours x Manufacturing Overhead Rate

Actual Manufacturing Overhead = $15,000

Actual Direct Labor Hours = 800

Manufacturing Overhead Rate = $20

Using the formula, we can calculate:

Applied Manufacturing Overhead = 800 hours x $20/hour = $16,000

The amount of overapplied or underapplied manufacturing overhead is the difference between the actual manufacturing overhead and the applied manufacturing overhead:

Overapplied/Underapplied Manufacturing Overhead = Actual Manufacturing Overhead - Applied Manufacturing Overhead

= $15,000 - $16,000

= -$1,000

Since the result is negative, it means that the manufacturing overhead is underapplied. Therefore, the correct answer is 2) $5,000 underapplied.