Question

Badour Inc. is a job-order manufacturer. The company uses a predetermined overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours were 114,000 and estimated factory overhead was $695,400. The following information was for September. Job X was completed during September, while Job Y was started but not finished.

September 1, inventories:
Materials	$9,000
Work-in-process (All Job X)	37,400
Finished goods	80,400
Materials purchases	$125,000
Direct materials requisitioned:
Job X	$54,500
Job Y	40,000
Direct labor hours:
Job X	5,000
Job Y	4,500
Labor costs incurred:
Direct labor ($6.00 per hour)	$57,000
Indirect labor	16,200
Factory supervisory salaries	7,200
Rental costs:
Factory	$8,400
Administrative offices	2,200
Total equipment depreciation costs:
Factory	$9,000
Administrative offices	1,900
Indirect materials used	$14,400

The underapplied or overapplied overhead for September is:

$2,750 underapplied.

$2,750 overapplied.

$920 overapplied.

$920 underapplied.

$1,450 underapplied.

Answer 1

• Correct Answer is Option #2: $ 2,750 Over-applied

A	Estimated Factory Overhead	$              695,400
B	Estimated direct labor hours	114000
C = A/B	Predetermined Overhead rate	$                     6.10
D = 5000 for X and 4500 for Y	Total Actual Direct Labor hours	9,500
E = C x D	Factory Overhead applied	$                57,950
	Actual factory Overhead:
	Indirect Labor	$                16,200
	Factory Supervisory Salaries	$                   7,200
	Factory Rental costs	$                   8,400
	Factory Depreciation costs	$                   9,000
	Indirect Material used	$                14,400
F	Total Actual Factory Overhead	$                55,200
	Overheads are	OVER – APPLIED [because applied overhead are MORE than Actual Overheads
G = E - F	Over Applied Overheads are	$                   2,750