The Mason Corporation budgeted overhead at $240,000 for the period for Department A based on a budgeted volume of 60,000 direct labor hours. At the end of the period, the factory overhead control account for Department A had a debit balance of $260,000; actual direct labor hours were 63,000. What was the under- or over applied factory overhead for the period?

Question

Quizplus · Accepted Answer

To determine the under- or over applied factory overhead, we need to compare the actual overhead cost with the budgeted overhead cost based on the actual activity level:

Budgeted overhead rate per direct labor hour = Budgeted overhead cost / Budgeted direct labor hours
= $240,000 / 60,000 hours = $4 per hour

Applied factory overhead = Actual direct labor hours * Budgeted overhead rate
= 63,000 hours * $4 per hour = $252,000

Under- or Over applied factory overhead = Actual factory overhead - Applied factory overhead
= $260,000 - $252,000 = $8,000 underapplied.

Therefore, the correct answer is C) $8,000 underapplied.

The Mason Corporation Budgeted Overhead at $240,000 for the Period