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Bunnell Corporation is a manufacturer that uses job-order costing. On January 1, the company’s inventory balances were as follows:

Raw materials	$	72,500
Work in process	$	18,200
Finished goods	$	46,500

The company applies overhead cost to jobs on the basis of direct labor-hours. For the current year, the company’s predetermined overhead rate of $15.50 per direct labor-hour was based on a cost formula that estimated $620,000 of total manufacturing overhead for an estimated activity level of 40,000 direct labor-hours. The following transactions were recorded for the year:

1. Raw materials were purchased on account, $628,000.
2. Raw materials used in production, $598,000. All of of the raw materials were used as direct materials.
3. The following costs were accrued for employee services: direct labor, $570,000; indirect labor, $150,000; selling and administrative salaries, $266,000.
4. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $418,000.
5. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $470,000.
6. Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year.
7. Jobs costing $1,717,900 to manufacture according to their job cost sheets were completed during the year.
8. Jobs were sold on account to customers during the year for a total of $3,225,000. The jobs cost $1,727,900 to manufacture according to their job cost sheets.

9. Is manufacturing overhead underapplied or overapplied for the year? By how much?

Answer 1

Applied overhead = 41000*15.50 = 635500

Actual overhead = 150000+470000 = 620000

Over applied overhead = 635500-620000 = 15500