A manufacturing company applies overhead based on direct labor hours. At the beginning of the year, it estimated that overhead costs would be $720,000 and direct labor hours would be 90,000. Actual overhead costs incurred were $754,400, and actual direct labor hours were 92,000. What is the amount of overapplied or underapplied overhead at the end of the year?
A) $34,400 overapplied
B) $18,400 overapplied
C) $34,400 underapplied
D) $18,400 underapplied

Question

Quizplus · Accepted Answer

The predetermined overhead rate is $720,000 / 90,000 hours = $8 per hour. Applied overhead is $8 * 92,000 hours = $736,000. Actual overhead is $754,400. The difference is $754,400 - $736,000 = $18,400 underapplied.

A Manufacturing Company Applies Overhead Based on Direct Labor Hours