Toronto Company applies overhead based on direct labor hours. At the beginning of 20x2, the company estimateed that manufacturing overhead would be $500,000, and direct labor hours would total 50,000. By 20x2 year-end, actual overhead totaled $510,000, and actual direct labor hours were 45,000. On the basis of this information, the 20x2 over-or-underapplied overahead is:
|Predetermined Overhead application rate = Estimated Manufacturing overhead / Estimated direct labour hours|
|Predetermined Overhead application rate = $500000/50000 direct labour hours = $10 per direct labour hour|
|Overhead applied in 20x2 = Actual direct labour hours * Predetermined overhead application rate|
|Overhead applied in 20x2 = 45000 hours * $10 = $4,50,000|
|The 20X2 Overhead underapplied = Actual overheads - Applied Overheads = $510000 - $450000 = $60,000|
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