Question

A company allocates overhead at a rate of 150% of direct labor cost. Actual overhead cost for the current period is $950,000, and direct labor cost is $600,000.

Determine whether there is over-or underapplied overhead using the T-account below.

Answer 1

Correct Answer:

Overhead under applied by $ 50,000

Working:

Factory Overhead
Actual OH	$      9,50,000	$          9,00,000	Overhead applied (150% *600,000)
		$              50,000	Under-applied OH (950,000-900,000)
	$      9,50,000	$          9,50,000

Note: when Overhead applied is less than Actual Overhead then it is Under-Applied and vice versa.

End of answer.

Please give a thumbs-up, it will be highly appreciated.

Thanks.