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 $360,000 and direct labor hours would be 45,000. Actual factory overhead costs incurred were $377,200 and actual direct labor hours were 47,000. What is the amount of overapplied or underapplied manufacturing overhead at the end of the year?
1) $1,200 overapplied
2) $16,000 underapplied
3) $1,200 underapplied
4) $16,000 overapplied

Answer 1

Answer:

The amount of overapplied or underapplied manufacturing overhead at the end of the year are: 1) $1,200 overapplied

Explanation:

The amount of overapplied or underapplied manufacturing overhead at the end of the year are: 1) $1,200 overapplied. But why?

Our estimated factory overhead costs would be $360,000.00 and direct labor hours would be 45,000. So our cost per hour would be $8.00.

If calculate 47,000 hours which is our actual direct labor hours *  our cost per hour then factory overhead costs would be:

47,000 * $8.00 = $376,000.00

If actual factory overhead costs incurred were $377,200.00 and according to the hours worked estimated factory overhead costs would be $376,000.00:

$377,200.00 -  $376,000.00= $1,200.00