Question

During 2019, Sunland Company expected Job no. 59 to cost $600000 of overhead, $520000 of materials, and $400000 in labor. Sunland applied overhead based on direct labor cost. Actual production required an overhead cost of $315000, $590000 in materials used, and $240000 in labor. All of the goods were completed. How much is the amount of over- or underapplied overhead?

Answer 1

Under-absorbed overheads= $15,000

Step-by-step explanation:

Over or under absorbed overhead occurs where there is a difference between absorbed overhead and actual overhead.

To determine whether overhead is over absorbed or under absorbed we follow the steps below:

Step 1 : Absorption rate

Rate = 600,000/400,000× 100= 125%

Step 2 : Absorbed overhead

Absorbed overhead= 125%×240,000=300,000

Under absorbed overheads = 315,000-300,000= $15,000

Under-absorbed overheads= $15,000