Minstrel Manufacturing uses a job order costing system.During one month,Minstrel purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect.Minstrel incurred a factory payroll of $150,000,of which $40,000 was indirect labor.Minstrel uses a predetermined overhead application rate of 150% of direct labor cost.
-If Minstrel incurred total overhead costs of $167,800 during the month,compute the amount of under- or overapplied overhead:
A)$2,800 overapplied.
B)$17,800 underapplied.
C)$2,800 underapplied.
D)$17,800 overapplied.
E)$57,200 overapplied.

Question

Quizplus · Accepted Answer

The applied overhead is calculated as 150% of direct labor cost. Direct labor cost is $110,000 ($150,000 total payroll - $40,000 indirect labor). Applied overhead is 150% of $110,000, which is $165,000. The actual overhead incurred is $167,800. Therefore, the overhead is underapplied by $2,800 ($167,800 - $165,000).

Minstrel Manufacturing Uses a Job Order Costing System