Question

THE Company applies overhead costs to jobs using direct
labor cost as an activity. For the current year, THE
Company reported estimated overhead cost of $500,000
while the actual overhead cost totaled $510,000. THE's
estimated direct labor cost was $200,000 while the
actual direct labor cost was $220,000. For the current
year, overhead was:

Group of answer choices

under-applied by $10,000

under-applied by $20,000

under-applied by $30,000

under-applied by $40,000

over-applied by $10,000

over-applied by $20,000

over-applied by $30,000

over-applied by $40,000

none of the above choices are correct

Answer 1

Correct Option: over-applied by $40,000
Working Note :
Predetermined overhead rate = Estimated Overhead / Estimated labour cost
=500000/200000
2.5	per $ of direct labour cost
Calculate overhead applied
Overhead applied = actual labour cost * overhead rate
=220000*2.5
550,000
Overapplied Overhead = Applied - actual overhead
=550000 - 510000
40000