Question

ABC Company estimates the following at the beginning of the year:

Estimated direct labor hours                                                                  25,000 hours

Estimated fixed manufacturing overhead                                           $40,000

Estimated variable manufacturing overhead per direct labor hour $3

During 20x4 ABC Company actually incurred $100,000 in manufacturing overhead, and used 22,000 in direct labor hours. Calculate the amount of overapplied or underapplied manufacturing overhead for the period.

a.) 13,800 overapplied

b.) 1,200 overapplied

c.) 1,200 underapplied

d.) 13,800 underapplied

Answer 1

Estimated direct labor hours = 25,000 hours

Estimated fixed manufacturing overhead = $40,000

Estimated variable manufacturing overhead per direct labor hour = $3

Predetermined overhead rate = Estimated variable manufacturing overhead per direct labor hour + Estimated fixed manufacturing overhead/Estimated direct labor hours

= 3 + 40,000/25,000

= 3 + 1.6

= $4.6 per direct labor hour

Actual manufacturing overhead cost = $100,000

Actual direct labor hour = 22,000

manufacturing overhead applied = Actual direct labor hour x Predetermined overhead rate

= 22,000 x 4.6

= $101,200

Overapplied manufacturing overhead cost = manufacturing overhead applied - Actual manufacturing overhead cost

= 101,200 - 100,000

= $1,200

Correct option is (b)