Question

During its most recent period, Raymond Manufacturing expected a job to cost $600,000 of overhead, $1,000,000 of materials, and $400,000 in labor. Raymond applies overhead based on direct labor cost. Actual production required an overhead cost of $590,000, materials of $1,140,000 were used, and $440,000 in labor. Is overhead over- or underapplied and by how much? *

Answer 1

Answer:

Over-applied by $70,000

Explanation:

Overhead Rate: Expected overhead / Expected Labor cost

Overhead Rate: $600,000 / $400,000

Overhead Rate: 150% or $1.5 for every $1 cost of labor

Overhead Applied

Actual Labor Cost: $440,000

Overhead Applied: $440,000 * 150%

Overhead Applied: $660,000

Actual Overhead: $590,000

Over-Applied: Applied Overhead - Actual Overhead

Over-Applied: $660,000 - $590,000

Over-Applied: $70,000