Question

Hamilton Company applies manufacturing overhead costs to products based on direct labor hours. The company estimates manufacturing overhead cost for the year to be $250,000 and direct labor hours to be 20,000. Actual overhead and actual direct labor hours for the year were $260,000 and 22,000 hours, respectively. Required: 1. Compute over- or underapplied overhead. 2a. Which accounts will be affected by the over- or underapplied manufacturing overhead

Answer 1

See below

Step-by-step explanation:

1. Compute the over or under applied overhead.

First, we will calculate the predetermined overhead

Predetermined overhead = Estimated manufacturing overhead cost for the year / Estimated direct labor hours

= $250,000 / 20,000

= $12.5 per direct labor hour

Then,

Applied manufacturing overhead

= Predetermined overhead × Actual direct labor hours

= $12.5 × 20,000

= $250,000

2. The accounts that will be affected by over or under applied manufacturing overhead are;

• Manufacturing overhead

• Cost of goods sold