Question

Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $400,000, and direct labor costs to be $2,000,000. Actual overhead costs for the year totaled $380,000, and actual direct labor costs totaled $1,800,000. At year-end, the balance in the Factory Overhead account is a:_________.
a. $360,000 Debit balance.
b. $20,000 Credit balance.
c. $400,000 Credit balance.
d. $20,000 Debit balance.
e. $380,000 Debit balance.

Answer 1

Answer:

Option d ($20,000 Debit balance) is the appropriate option.

Explanation:

The given values are:

Total overhead costs,

= $400,000

Direct labor costs,

= $2,000,000

Actual overhead incurred,

= $380,000

Actual direct labor costs,

= $1,800,000

Now,

As a % of labor cost, the OH will be:

= $\frac{400000}{2000000}\times 100$

= $20 \ percent$

The absorbed overhead will be:

= $1800000\times 20 \ percent$

= $360,000$

Then,

The balance in overhead account will be:

= Actual overhead incurred - Absorbed overhead

= $380000 - 360000$

= $20,000$ ($) (Debit balance)