Question

Morris Company applies overhead at 20% of direct labor costs. Actual overhead costs for the year totaled $380,000, and actual direct labor costs totaled $1,800,000. At year-end, the balance in the Factory Overhead account is a:

Answer 1

$20,000 debit balance

Step-by-step explanation:

Overhead is meant to absorbed at 20% of direct labor costs

absorbed overhead=20%*direct labor costs

direct labor costs is $1,800,000

absorbed overhead as a percentage of labor costs=20%*$1,800,000=$360,000

Balance in factory overhead account=actual overhead-overhead absorbed

actual overhead is $380,000

balance in factory overhead account=$380,000-$360,000=$20,000

The balance in factory overhead account is $20,000 debit balance since the amount absorbed is less than actual,an additional cost of $20,000 needs to be recognized