Question

The following cost data relate to the manufacturing activities of Chang Company during the just completed year Manufacturing overhead costs incurred: Indirect materials Indirect labor Property taxes, factory Utilities, factory Depreciation factory Insurance, factory $ 16,300 143,000 9,300 83,000 149,100 11,300 Total actual manufacturing overhead costs incurred $ 412,000 $ 413,000 $ 73,000 Other costs incurred: Purchases of raw materials (both direct and indirect) Direct labor cost Inventories: Raw materials, beginning Raw materials, ending Work in process, beginning Work in process, ending $ 21,300 $ 31,300 $ 41,300 $ 71,300 The company uses a predetermined overhead rate to apply overhead cost to jobs. The rate for the year was $20 per machine-hour. A total of 21,000 machine-hours was recorded for the year Required: 1. Compute the amount of underapplied or overapplied overhead cost for the year overhead cost

Answer 1

Solution: Budgeted overhead costs = Number of hours * Predetermined overhead rate

= 21,000 * $20 = $420,000

Actual manufacturing overhead costs incurred = $412,000

Overapplied overhead occurs when a company has overhead costs less than its budgeted costs. On the other hand underapplied overhead occurs when a company has overhead costs greater than its budgeted costs.

So in the given case company has overhead costs less than its budgeted costs, it is called overapplied overhead.

Overapplied overhead = Budgeted overhead - Actual overhead

= $420,000 - $412,000 = $8,000

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