w Company uses direct-labor hours as the basis for application of overheads. The company
has furnished the following information:
Estimated annual overhead cost $900,000
Actual annual overhead cost $580,000
Estimated direct labor-hours 50000
Actual direct labor-hours
40.000
Calculate overapplied or underapplied overheads.
a. $440,000 Underapplied
b. $260,000 Overapplied
c. $260,000 Underapplied
d. $440,000 Overapplied
Answers
Answer:
c.$260,000 Underapplied
Answer:
Explanation:
Pre-determined overhead
rate based on estimated
overhead costs
$18.00 = $900,000 /50,000 direct labor hours
Applied overhead $18.00 X 40,000 dlh = $720,000
Actual overhead =580,000
overapplied balance in
overhead account $140,000
At the beginning of the period
Estimated amount of overhead / Estimated amount of allocation base =
predetermined overhead rate
* During the period
Predetermined overhead rate x actual amount of allocation base incurred =
total manufacturing overhead applied
* Actual overhead costs are added to the manufacturing overhead account
At the end of the period
Actual manufacturing overhead cost – Total manufacturing overhead applied = Underapplied overhead if a debit or Overapplied if a credit.
The underapplied or overapplied overhead is closed to Cost of Goods Sold.