Question

Estimated manufacturing overhead $500,000 Estimated direct labor hours 200,000 Actual manufacturing overhead $625,000 Actual direct labor hours 260,000 The company applies overhead using direct labor hours as the cost driver. Calculate the amount that overhead was overapplied or underapplied. Multiple choice question.

Answer 1

Answer:

$25,000

Explanation:

The computation of the overhead or underapplied amount overhead is shown below:

But before that the predetermined overhead rate is

= Estimated manufacturing overhead ÷ estimated direct labour hours

= $500,000 ÷ 200,000

= 2.5

Now the applied overhead is

= Actual direct labor hours × predetermined overhead

= 260,000 × 2.5

= $650,000

Now the overhead overapplied is

= $650,000 - $625,000

= $25,000