Question

Adams Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated total overhead of $380,800; materials of $414,000 and direct labor of $224,000. During the year Adams incurred $403,200 in materials costs, $398,000 in overhead costs and $228,000 in direct labor costs. Compute the amount of under- or overapplied overhead for the year.

Answer 1

The overapplied overhead is $387,600 for the year

Step-by-step explanation:

Computing the overhead rate as:

Overhead rate (OH) = Total Overhead / Direct labor

where

Total overhead is $380,800

Direct labor is $224,000

Putting the values above:

Overhead rate = $380,800 / $224,000

Overhead rate = 1.7 0r 170%

Now,

Computing the overapplied overhead as:

Overapplied OH = Overhead cost × Overhead rate

where

Overhead cost is $228,000

Overhead rate is 170%

Putting the values above:

Overapplied OH = $228,000 × 170%

Overapplied OH = $387,600