Question

Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $472,000, and direct labor costs to be $2,360,000. Actual overhead costs for the year totaled $434,000, and actual direct labor costs totaled $1,980,000. At year-end, the balance in the Factory Overhead account is a:_________.
a) $38,000 Credit balance
b) $472,000 Credit balance.
c) $396,000 Debit balance.
d) $38,000 Debit balance.
e) $434,000 Debit balance.

Answer 1

Answer:

d) $38,000 Debit balance.

Explanation:

Predetermined overhead rate = Estimated Total Overhead Costs / Estimated Direct Labor Costs

= $472000 / $2,360,000

= 0.2

= 20% of direct labor costs.

Applied overheads = (20%*Actual direct labor costs)

Applied overheads = 20% * $1,980,000

Applied overheads = $396,000

So, Overhead under-applied = $434,000 - $396,000 = $38,000 (Debit)