Question

A manufacturing company budgeted for $1,240,000 in manufacturing overhead and expected 400,000 direct labor hours. Actual overhead was $1,200,000, and actual direct labor hours were 390,000. Was manufacturing overhead over- or underapplied and by how much?
a. Underapplied by $9,000
b. Overapplied by $40,000
c. Underapplied by $40,000
d. Overapplied by $9,000

Answer 1

Answer:

a. Under applied by $9,000

Explanation:

Budgeted overheads = $1,240,000

Budgeted overheads = 400,000

Budgeted rate per hour = $1,240,000/400,000 = $3.10

Actual overhead = $1,200,000

Actual Hours = 390,000

Actual Rate per hour = $3.077

budgeted overhead for actual hours = 390,000 $\times$ $3.10 = $1,209,000

Thus, overheads under applied = Standard - Actual = $1,209,000 - $1,200,000 = $9,000

Since actual overheads are less than budgeted it is under applied in case it was more than budgeted then i would be over applied.

Final Answer

a. Under applied by $9,000