Question

During March 2019, Alaska Corporation recorded $236,000 of costs related to factory overhead.  Alaska's overhead application rate is based on direct labor hours. The preset formula for overhead application estimated that $250,000 would be incurred, and 12,500 direct labor hours would be worked.  During March, 11,800 hours were actually worked. Use this information to determine the amount of overhead over or under applied.  Enter overapplied overhead as a negative number. (round & enter any final dollar answers to the nearest whole dollar)

Answer 1

• Predetermined overhead rate = Estimated total factory overhead ÷ Estimated direct labor hours = $250,000 ÷ 12,500 direct labor hours = $20 per direct labor hour
• Actual direct labor hours worked = 11,800 direct labor hours
• Applied overhead = Actual direct labor hours worked ×  Predetermined overhead rate = 11,800 direct labor hours ×  $20 per direct labor hour = $236,000
• Actual overhead incurred = $236,000
• Actual overhead incurred = Applied overhead = $236,000. Therefore, there is no over or under application.