Question

Mango Company applies overhead based on direct labor costs. For the current year, Mango Company estimated total overhead costs to be $340,000, and direct labor costs to be $170,000. Actual overhead costs for the year totaled $368,000, and actual direct labor costs totaled $192,000. At year-end, Factory Overhead account is: Multiple Choice Neither overapplied nor underapplied. Overapplied by $16,000. Overapplied by $22,000. Underapplied by $16,000. Overapplied by $192,000.

Answer 1

Answer:

Overapplied overhead= $16,000

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=  340,000 / 170,000

Predetermined manufacturing overhead rate= $2 per direct labor dollar

Now, we can allocate overhead:

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

Allocated MOH= 2*192,000

Allocated MOH= $384,000

Finally, the over/under allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 368,000 - 384,000

Overapplied overhead= $16,000