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A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the...

A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that factory overhead costs would be $420,597 and direct labor hours would be 46,733. Actual factory overhead costs incurred were $439,569, and actual direct labor hours were 50,876. What is the amount of overapplied or underapplied manufacturing overhead at the end of the year?

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Answer #1

Predetermined Overhead Rate = Estimated Factory Overhead Cost / Direct Labor Hours

= $ 420,597 / 46,733 Direct Labor Hours

= $ 9.00 Per Direct Labor Hour

Applied Overhead = Predetermined Overhead Rate * actual direct labor hours

= $ 9.00 Per Direct Labor Hour * 50,876 Direct Labor Hours

= $ 457,884

Since the Actual Overhead is less than the applied overhead, the overhead is overapplied.

The overapplied Overhead =Applied Overhead - Actual Overhead

= $ 457,884 - $ 439,569

= $ 18,315

Hence the correct answer is $ 18,315 Overapplied.

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