Question

Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $452,000, and direct labor costs to be $2,260,000. Actual overhead costs for the year totaled $419,000, and actual direct labor costs totaled $1,930,000. At year-end, the balance in the Factory Overhead account is a: Multiple Choice $452,000 Credit balance. $386,000 Debit balance. $33,000 Debit balance. $33,000 Credit balance. $419,000 Debit balance.

Answer 1

Answer:

As overhead was underapplied, the balance in overhead will be $33,000 credit.

Explanation:

First, we need to calculate the predetermined overhead rate:

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

Predetermined manufacturing overhead rate= 452,000 / 2,260,000

Predetermined manufacturing overhead rate= $0.2 per direct labor dollar

Now, we can allocate costs:

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

Allocated MOH= 0.2*1,930,000

Allocated MOH= $386,000

Finally, we determine the over/under allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead=  419,000 - 386,000

Underapplied overhead= $33,000

As overhead was underapplied, the balance in overhead will be $33,000 credit.