Question

XYZ Company had the following information:

Budgeted overhead                                         $75,000

Actual overhead                                              $80,000

Budgeted Direct-labor hours                          20,000

Ending balances in the following accounts:

	Ending Balance	Actual DLH in Ending Balance
Raw Materials Inventory	$ 40,000	0
Work In Process Inventory	$ 30,000	2,100
Finished Goods Inventory	$ 60,000	8,400
Cost of Goods Sold	$210,000	10,500

• If 21,000 direct labor hours are used, calculate the amount of allocated manufacturing overhead.
• By how much is XYZ’s manufacturing overhead under or over applied? Be sure to specify over versus under-applied.

Answer 1

Budgeted Overhead = $75000

Budgeted Direct Labour Hour = 20000

Budgeted Overhead per hour = Budgeted Overhead / Budgeted Direct Labour Hour

= $75000 / 20000

= 3.75

Overhead absorbed = Actual Direct Labour Hour * Budgeted Overhead per hour

= 21000 * 3.75

= $78750

Actual Overhead = $80000

Since the Overhead absorbed is less than Actual Overhead, this means than the Overhead is under applied.

Amt by which Overhead is under applied = Actual Overhead - Overhead absorbed

= $80000 - $78750

= $1250 underapplied