Question

"estimated data for lorien company for year 1 are as follows: total manufacturing overhead: $650,000 direct labor hours: 130,000 hours actual data for lorien company for year 1 are as follows: total manufacturing overhead: $650,000 direct labor hours: 110,000 hours the manufacturing overhead rate is determined on the basis of direct labor hours. what is the amount of over- or under-applied overhead for lorien company for year 1?"

Answer 1

Answer: Lorein company's actual manufacturing overhead is greater than applied manufacturing overhead, so overhead has been under-applied to the extent of $100,000.

We have:

Estimated Manufacturing overhead = $650,000

Estimated Direct Labor hours = 130,000 hours

Actual Manufacturing Overhead = $650,000

Actual Direct Labor hours = 110,000 hours.

Calculation of Estimated (Predetermined) Overhead rate:

$Estimated overhead rate =\frac{Estimated overhead}{Estimated labor hours}$

$Estimated overhead rate = 5 (650,000/130,000)$

Calculation of Applied manufacturing overhead:

$Applied overhead = Estimated overhead rate * Actual production hours [/tex]

[tex] Applied overhead = 550,000 (5 * 110,000)$

Calculation of underapplied or overapplied manufacturing overhead:

Under or over applied overhead = Actual Overhead - Applied Overhead

If actual overheads are less than applied overheads, then overheads have been over-applied.

If actual overheads are more than applied overheads, then overheads have been under-applied.

In this case,

$Actual overhead - Applied overhead = 650000 - 550000 = 100000$