Question

Randall Company manufactures products to customer specifications. A job costing system is used to accumulate production costs. Factory overhead cost was applied at 120% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

		January 1		December 31
	Direct materials	$	90,000	$	53,000
	Work in process		79,000		55,000
	Finished goods		128,000		113,000
	Other information
	Direct materials purchases			$	337,000
	Cost of goods available for sale				988,000
	Actual factory overhead costs				273,000

The amount of underapplied or overapplied overhead is:

Answer 1

Cost of goods manufactured = 988000-128000 = $860000

Total manufacturing cost = 860000+55000-79000 = $836000

Direct material used = 90000+337000-53000 = $374000

Direct labour and applied overhead = 836000-374000 = 462000

Applied overhead = 462000*120/220 = $252000

Actual overhead = 273000

Under and over applied = Applied overhead-Actual overhead = 252000-273000 = $21000 under applied

The amount of under applied or over applied overhead is: $21000 under applied