WearsArt, a local clothing design company, has only two departments (both of them classified as production departments): Design and Production. Budgeted yearly information for these departments is as follows:
Design: 200 square feet; 2,000 direct labor hours, at $25/hour
Production: 800 square feet; 4,000 direct labor hours, at $12/hour
WearsArt budgeted for the following overhead costs this year:
Rent and utilities are allocated to each department based on square footage, and other overhead costs are allocated based on direct labor hours. Design and Production overhead costs are allocated to jobs based on direct labor hours.
Suppose that, due to a downturn in the economy, WearsArt had much lower levels of demand and production than anticipated. As such, at the end of the year, there were only 1,000 hours worked in design, and 3,500 hours worked in Production. However, the supplies and equipment had been bought at the start of the year, and the amount of overhead was the same as budgeted.
What is the amount of over- or under-applied overhead at the end of the year? (Do not round intermediate calculations, round final answer to nearest dollar.)

Question

WearsArt, a local clothing design company, has only two departments (both of them classified as production departments): Design and Production. Budgeted yearly information for these departments is as follows:
Design: 200 square feet; 2,000 direct labor hours, at $25/hour
Production: 800 square feet; 4,000 direct labor hours, at $12/hour
WearsArt budgeted for the following overhead costs this year:
  Rent and utilities are allocated to each department based on square footage, and other overhead costs are allocated based on direct labor hours. Design and Production overhead costs are allocated to jobs based on direct labor hours.
Suppose that, due to a downturn in the economy, WearsArt had much lower levels of demand and production than anticipated. As such, at the end of the year, there were only 1,000 hours worked in design, and 3,500 hours worked in Production. However, the supplies and equipment had been bought at the start of the year, and the amount of overhead was the same as budgeted.
What is the amount of over- or under-applied overhead at the end of the year? (Do not round intermediate calculations, round final answer to nearest dollar.)

Quizplus · Accepted Answer

The Answer of WearsArt, a local clothing design company, has only two departments (both of them classified as production departments): Design and Production. Budgeted yearly information for these departments is as follows:
Design: 200 square feet; 2,000 direct labor hours, at $25/hour
Production: 800 square feet; 4,000 direct labor hours, at $12/hour
WearsArt budgeted for the following overhead costs this year:
  Rent and utilities are allocated to each department based on square footage, and other overhead costs are allocated based on direct labor hours. Design and Production overhead costs are allocated to jobs based on direct labor hours.
Suppose that, due to a downturn in the economy, WearsArt had much lower levels of demand and production than anticipated. As such, at the end of the year, there were only 1,000 hours worked in design, and 3,500 hours worked in Production. However, the supplies and equipment had been bought at the start of the year, and the amount of overhead was the same as budgeted.
What is the amount of over- or under-applied overhead at the end of the year? (Do not round intermediate calculations, round final answer to nearest dollar.)

WearsArt, a Local Clothing Design Company, Has Only Two Departments