Lonestar Corporation uses a job-order costing system to account for product costs. The following information pertains to 2018: $$\begin{array} { l r }
\text { Materials Placed into Froduction } & \$ 140,000 \
\text { Indirect Labor } & 40,000 \
\text { Direct Labor (10,000 hours) } & 160,000 \
\text { Depreciation of Factory Building } & 60,000 \
\text { Other Factory Overhead } & 100,000 \
\text { Increase in Work-in-Process Inventory } & 30,000
\end{array}$$ Factory overhead rate is $18 per direct labor hour.
What is the amount of under- or overapplied overhead for Lonestar Corporation in 2018?
A)$40,000 overapplied
B)$20,000 overapplied
C)$40,000 underapplied
D)$20,000 underapplied

Question

Lonestar Corporation uses a job-order costing system to account for product costs. The following information pertains to 2018: $$\begin{array} { l r } 
\text { Materials Placed into Froduction } & \$ 140,000 \
\text { Indirect Labor } & 40,000 \
\text { Direct Labor (10,000 hours) } & 160,000 \
\text { Depreciation of Factory Building } & 60,000 \
\text { Other Factory Overhead } & 100,000 \
\text { Increase in Work-in-Process Inventory } & 30,000
\end{array}$$ Factory overhead rate is $18 per direct labor hour.
What is the amount of under- or overapplied overhead for Lonestar Corporation in 2018?
A)$40,000 overapplied
B)$20,000 overapplied
C)$40,000 underapplied
D)$20,000 underapplied

Quizplus · Accepted Answer

The factory overhead rate is $18 per direct labor hour, and there were 10,000 direct labor hours. Therefore, the applied overhead is 10,000 hours * $18/hour = $180,000. The actual overhead costs are the sum of indirect labor, depreciation of the factory building, and other factory overhead, which equals $40,000 + $60,000 + $100,000 = $200,000. The difference between the applied overhead ($180,000) and the actual overhead ($200,000) is $20,000, indicating that the overhead is underapplied by $20,000.

Lonestar Corporation Uses a Job-Order Costing System to Account for Product