Question

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 $540,000 and direct labor hours would be 45,000. Actual factory overhead costs incurred were $566,000, and actual direct labor hours were 47,000. What is the amount of overapplied or underapplied manufacturing overhead at the end of the year?

Answer 1

• All working forms part of the answer

A	Estimated Factory Overhead cost	$          540,000.00
B	Estimated direct Labor hours	45,000
C = A/B	Overhead rate per DLHs	$                    12.00
D	Actual Direct Labor hours	47,000
E = C x D	Overhead applied	$          564,000.00
F	Actual Factory Overheads	$          566,000.00
	Overheads are	UNDER - APPLIED, because Applied overheads are LESS than Actual Overheads
G = F - E	Under - Applied Overheads	$              2,000.00

• Overheads are Under – Applied by $ 2,000