Question

During 2017, Cotte Manufacturing expected Job No. 59 to cost $300,000 of overhead, $500,000 of materials, and $200,000 in labor. Cotte applied overhead based on direct labor cost. Actual production required an overhead cost of $295,000, $570,000 in materials used, and $220,000 in labor. All of the goods were completed. How much is the amount of over- or underapplied overhead?

a) 35,000 underapplied
b) 5,000 overapplied
c) 35,000 overapplied
d) 5,000 underapplied

Answer 1

Answer: $35,000 Overapplied

Explanation: overapplied or under applied manufacturing overhead is the difference between applied overhead and actual overhead cost.

If actual overhead cost exceeds the applied overhead cost, then we have underapplied overhead.

If applied overhead cost exceeds the actual overhead cost, then we have overapplied overhead.

Applied overhead was based on direct labor cost =

(expected overhead÷expected labor cost) * actual labor cost

Applied overhead =

($300,000÷$200,000) × $220,000

1.5 × $220,000 = $330,000

Actual overhead = $295,000

Therefore over or under applied Overhead =

$330,000 - $295,000 = $35,000

Here, applied manufacturing overhead exceeds actual manufacturing overhead, overapplied overhead.