Question

Adams Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated total overhead of $396,000; materials of $410,000 and direct labor of $220,000. During the year Adams incurred $418,000 in materials costs, $413,200 in overhead costs and $224,000 in direct labor costs. Compute the amount of under- or overapplied overhead for the year. 6) A) $4,800 underapplied. B) $10,000 underapplied. C) $17,200 underapplied. D) $10,000 overapplied. E) $17,200 overapplied.

Answer 1

The Adams Manufacturing has allocated its total overhead costs by a sum of $17,200, which is over-applied.

What are overhead costs?

The expenses or costs, which are incurred by a business, which are completely unrelated to the production or manufacturing of the firm's goods or services, are known as overhead costs. They are indirect costs.

The computation of the overhead costs will be as follows,

$\rm Overhead\ Costs= Actual\ Overheads-Estimated\ Overheads\\\\\rm Overhead\ Costs= 413200-396000\\\\\rm Overhead\ Costs=\ 17200$

Hence, option E holds true regarding the overhead costs.

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