Question

A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that factory overhead costs would be $469,930 and direct labor hours would be 46,993. Actual factory overhead costs incurred were $523,248, and actual direct labor hours were 54,505. What is the amount of overapplied or underapplied manufacturing overhead at the end of the year

Answer 1

Overapplied overhead= $21,802

Step-by-step explanation:

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 469,930 / 46,993

Predetermined manufacturing overhead rate= $10 per direct labor hour

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 10*54,505

Allocated MOH= $545,050

Finally, the over/under allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 523,248 - 545,050

Overapplied overhead= $21,802