Star Company's accountants estimate total overhead for each month will be $64,000. They will allocate overhead on the basis of direct labour cost. During the current month, three jobs were worked on: $\begin{array}{llll}&\text { Job 745 } & \text { Job 746 } & \underline{\text { Job 747 }}\
\text { Direct material } & \$ 36,000 & \$ 56,000 & \$ 24,000 \
\text { Direct labour } & \$ 56,000 & \$ 72,000 & \$ 40,000
\end{array}$ Job 745 was completed and sold, Job 746 was completed and Job 747 is still in process. Budgeted direct labour cost for the month was $160,000 and actual overhead was $65,800.
The amount of over- or underapplied overhead for the month was:

Question

Quizplus · Accepted Answer

Overhead is allocated on the basis of direct labour cost. Budgeted direct labour cost for the month was $160,000 and actual overhead was $65,800. So, the overhead allocation rate is $65,800/$160,000 = 0.41125.Job 745 was completed and sold, so it will be assigned overhead of $56,000 * 0.41125 = $23,150.Job 746 was completed, so it will be assigned overhead of $72,000 * 0.41125 = $29,595.Job 747 is still in process, so it will be assigned overhead of $40,000 * 0.41125 = $16,450.Total overhead assigned to the three jobs is $23,150 + $29,595 + $16,450 = $69,195.Actual overhead was $65,800, so the amount of over- or underapplied overhead is $69,195 - $65,800 = $3,395 overapplied.

Star Company's Accountants Estimate Total Overhead for Each Month Will