Question

Crich Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 22,120 hours and the total estimated manufacturing overhead was $575,120. At the end of the year, actual direct labor-hours for the year were 22,100 hours and the actual manufacturing overhead for the year was $575,120. Overhead at the end of the year was: (Round your intermediate calculations to 2 decimal places.)

Answer 1

The overhead at the end of the year was underapplied by $520.

As per the data provided:

We need to first determine the applied overhead based on the predetermined overhead rate.

*Predetermined overhead rate = Estimated manufacturing overhead / Estimated allocation base (Direct labor hours)

*Predetermined overhead rate = $575,120 / 22,120 hours

*Predetermined overhead rate = $26 per labor hour.

Now, the applied overhead will be:

*Applied overhead = Predetermined overhead rate * Actual labor hours used

*Applied overhead = $26 * 22,100 hours

*Applied overhead = $574,600

The last step is to determine the under or overapplied overhead:

Since the actual overhead incurred is more than the applied overhead, the overhead is said to be underapplied. Therefore, the overhead at the end of the year was underapplied by $520.

*Underapplied overhead = Actual overhead - Applied overhead

*Underapplied overhead = $575,120 - $574,600

*Underapplied overhead = $520