Question

During March 2019, Annapolis Corporation recorded $40,600 of costs related to factory overhead. Alpha's overhead application rate is based on direct labor hours. The preset formula for overhead application estimated that $43,500 would be incurred, and 4,000 direct labor hours would be worked. During March, 6,250 hours were actually worked. Use this information to determine the amount of factory overhead that was (over) or under applied. (Round answers to the nearest whole dollar. Enter as a positive number if under applied. Enter as a negative number if over applied.)

Answer 1

Overheads have been Over applied by $27,400

Step-by-step explanation:

Overhead Applied = Predetermined Overhead Rate × Actual Activity

Predetermined Overhead Rate = Budgeted Overheads / Budgeted Activity

= $43,500 / 4,000 direct labor hours

= $ 10,88 per direct labor hour

Overhead Applied = $ 10,88 × 6,250 hours

= $68,000

Actual Overheads = $40,600

Actual Overheads $40,600 < Overhead Applied $68,000

Therefore Overheads have been Over applied by $27,400 that is $68,000 - $40,600