Question

For Flower Company, the predetermined overhead rate is 141% of direct labour cost. During the month, Dene incurred $103,000 of factory labour costs, of which $80,000 is direct labour and $23,000 is indirect labour. Actual overhead incurred was $105,000.

Determine the amount of under- or over-applied manufacturing overhead.

Answer 1

Ans.

1. Compute the amount of manufacturing overhead applied during the month.

Manufacturing overhead applied= Actual direct labor cost x Predetermined overhead rate

Manufacturing overhead applied=$80,000 x 141%

Manufacturing overhead applied=$112,800

2. Determine the amount of under- or over-applied manufacturing overhead.

Particulars	Amount
Actual overhead	$105,000
Less: Manufacturing overhead applied	$112,800
Over-applied (under-applied) manufacturing overhead	$7,800

Actual overhead is less than manufacturing overhead applied. Hence, it is over-applied. The over-applied manufacturing overhead is $7,800.