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 $485,060 and direct labor hours would be 48,506. Actual factory overhead costs incurred were $508,253, and actual direct labor hours were 52,943. What is the amount of overapplied or underapplied manufacturing overhead at the end of the year

Answer 1

$21,177 overapplied

Step-by-step explanation:

Applied Overheads = Predetermined overhead rate x Actual activity

where,

Predetermined overhead rate = Budgeted Overheads ÷ Budgeted Activity

= $485,060 ÷ 48,506 hours

= $10 / direct labor hour

therefore,

Applied Overheads = $10 x 52,943 = $529,430

Since, Applied Overheads ($529,430) > Actual Overheads ($508,253), overheads have been over-applied by $21,177

Conclusion :

The amount of overapplied manufacturing overhead at the end of the year is $21,177