Hudson, Inc.has estimated total factory overhead costs of $400,000 and 20,000 direct labor hours for the current fiscal year.If direct labor hours for the year totals 18,000 and actual factory overhead totals $350,000, what is the amount of overapplied or underapplied overhead for the year?

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Quizplus · Accepted Answer

The predetermined overhead rate is calculated as estimated total factory overhead costs divided by estimated direct labor hours, which is $400,000 / 20,000 hours = $20 per direct labor hour. The applied overhead for the year is then the predetermined rate multiplied by the actual direct labor hours, which is $20 * 18,000 hours = $360,000. Since the actual factory overhead is $350,000, the difference is $360,000 - $350,000 = $10,000 overapplied.