Question

If estimated annual factory overhead is $546,000; overhead is applied using direct labor hours; estimated annual direct labor hours are 210,000; actual March factory overhead is $48,100; and actual March direct labor hours are 18,000; then overhead is: Multiple Choice $300 underapplied $300 overapplied $1,300 underapplied 900 overapplied $900 underapplied

Answer 1

Solution:

Predetermined overhead rate = Estimated overhead / Estimated labor hours

= $546,000/ 210,000 = $2.6 per labor hour

Therefore overhead applied = Actual labor hours in march* Predetermined overhead rate

= 18000* $2.6 = $46,800

Under or over applied overhead = actual overhead - applied overhead

= $48100 - $46800 = $1,300 under applied

Hence third option is correct.