Question

Woodman Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Estimated and actual data for direct labor and manufacturing overhead for last year are as follows:
Estimated Actual
Direct Labor Hours: 600,000 550,000
Manufacturing Overhead Estimated $720,000 $680,000

Answer 1

Answer:

Underapplied overhead= $20,000

Explanation:

Giving the following information:

Estimated Actual

Direct Labor Hours: 600,000 550,000

Manufacturing Overhead Estimated $720,000 $680,000

I assume that we need to calculate the over/under applied overhead.

First, we need to determine  the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 720,000/600,000

Predetermined manufacturing overhead rate= $1.2 per direct labor hour

Now, we apply overhead based on actual hours:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 1.2*550,000

Allocated MOH= $660,000

Finally, the under/over applied overhead:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 680,000 - 660,000

Underapplied overhead= $20,000