Question

During 2007, Kent Company applies overhead using a normal costing system at 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 underapplied
B) $20,000 underapplied
C) $0
D) $120,000 underapplied

Answer 1

To calculate the under or over applied overhead for Kent Company, subtract the applied overhead ($1,680,000) from the actual overhead ($1,700,000), resulting in $20,000 underapplied overhead for the year 2007.

Step-by-step explanation:

The question revolves around calculating the under or over applied overhead for Kent Company in 2007 using their normal costing system. First, we calculate the applied overhead for the year by multiplying the predetermined overhead rate by the actual direct labor hours, which equates to $12 per direct labor hour times 140,000 hours, resulting in $1,680,000. The actual overhead is $1,700,000. By comparing these figures, we find that the overhead is underapplied because actual overhead costs are greater than the applied overhead.

The difference between actual overhead and applied overhead is the amount of under or over applied overhead. In this case, the actual overhead of $1,700,000 minus the applied overhead of $1,680,000 results in $20,000 underapplied overhead for Kent Company in 2007.