Question

A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that factory overhead costs would be $362,655 and direct labor hours would be 40,295. Actual factory overhead costs incurred were $445,098, and actual direct labor hours were 51,516. What is the amount of overapplied or underapplied manufacturing overhead at the end of the year

Answer 1

Under/over applied overhead= $18,546 overallocated

Step-by-step explanation:

Giving the following information:

Estimated factory overhead costs= $362,655

Estimated direct labor hours= 40,295.

Actual factory overhead costs incurred were $445,098, and actual direct labor hours were 51,516

Firsts, we need to calculate the predetermined overhead rate:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 362,655/40,295

Estimated manufacturing overhead rate= $9 per direct labor hour

Now, we need to allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 9*51,516= $463,644

Finally, we determine the under/over allocated overhead:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 445,098 - 463,644= $18,546 overallocated