Question

# Swifty Company applies manufacturing overhead based on direct labor hours. Information concerning manufacturing overhead and labor...

Swifty Company applies manufacturing overhead based on direct labor hours. Information concerning manufacturing overhead and labor for the year as follows:

 Actual manufacturing overhead \$167400 Estimated manufacturing overhead \$159600 Direct labor incurred 2700 hours @ \$25 = \$67500 Direct labor estimated 2800 hours @ \$24 = \$67200

How much is over or underapplied overhead at year end?

\$7800 overapplied.

\$13500 underapplied.

\$5700 underapplied.

\$6200 underapplied.

Answer- The amount of under-applied overhead costs at year end = \$13500.

Explanation= Under-applied overhead costs = Actual manufacturing overhead costs – Manufacturing overhead applied

= \$167400 – \$153900

= \$13500

Explanation- Manufacturing overhead applied = Predetermined overhead rate per hour*Actual labor hours

= \$57 per labor hour *2700 labor hours

= \$153900

Where- Predetermined overhead rate = Total manufacturing overhead/ Budgeted labor hours

= \$159600/2800 labor hours

= \$57 per labor hour

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