Question

If estimated annual factory overhead is $546,000; overhead is applied using direct labor hours; estimated annual direct labor hours are 210,000; actual March factory overhead is $48,100; and actual March direct labor hours are 18,000; then overhead is:
a.$300 underapplied

b.$300 overapplied

c.$1,300 underapplied

d.$900 overapplied

e.$900 underapplied

Answer 1

Answer:

correct option is c.$1,300 under applied

Explanation:

given data

annual factory overhead = $546,000

annual direct labor hours =  210,000

March factory overhead = $48,100

March direct labor hours = 18,000

solution

we get here Predetermined overhead rate that is express as

Predetermined overhead rate = Estimated overhead ÷  Estimated labor hours   ......................1

put here value

Predetermined overhead rate = $\frac{546000}{210000}$

Predetermined overhead rate =  $2.6 per labor hour

and

overhead applied is

overhead applied = Actual labor hours in march × Predetermined overhead rate     ................2

overhead applied  = 18000 × $2.6

overhead applied  = $46,800

so we get Under or over applied overhead as

Under or over applied overhead  = actual overhead - applied overhead   ................3

put here value we get

Under or over applied overhead  = $48100 - $46800

overhead = $1,300 under applied

so correct option is c.$1,300 under applied