Question

Aspen Company estimates its manufacturing overhead to be $765,000 and its direct labor costs to be $510,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $162,000. Job 2-2, which was completed, but not sold at the end of the year, had actual direct labor costs of $287,000. Job 2-3, which is still in work-in-process inventory, had actual direct labor costs of $112,000. Actual manufacturing overhead for year 2 was $835,000. Manufacturing overhead is applied on the basis of direct labor costs.

Required:

a. How much overhead was applied to each job in year 2?

b. What was the over- or underapplied manufacturing overhead for year 2?

Answer 1

Answer

• Working

A	Overhead to be applied	$765,000
B	Estimated direct labor cost	$510,000
C = (A/B) x 100	Overhead allocation rate as % of direct labor cost	150%

• [a]

		Job 2-1	Job 2-2	Job 2-3	Total
A	Actual direct labor cost	$162,000	$287,000	$112,000	$561,000
B	Overhead allocation rate as % of direct labor cost	150%	150%	150%
C = A x B	Overhead applied to each Job = ANSWER	$243,000	$430,500	$168,000	$841,500

• [b]

Overhead applied	$841,500
Actual Overhead	$835,000
Overhead applied are	MORE THAN ACTUAL OVERHEAD, Hence OVER APPLIED
Overhead OVERAPPLIED by	$6,500