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James Ingram assigns overhead to jobs based on direct labour hours. At the beginning of the current year, estimated overhead costs were $300 000 and estimated direct labour hours were 50 000, while estimated machine hours were 60 000. During the year, 500 direct labour hours and 400 machine hours were used on Job #99. By the end of the year, actual overhead costs were calculated to be $218 000. Actual direct labour hours was 39 000 while actual machine hours was 48 000.
-What is the over/under application for the year,if direct labour hours is the overhead cost driver?

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated based on the estimated costs and hours at the beginning of the year: $300,000 / 50,000 hours = $6 per direct labour hour. The actual overhead applied to jobs is based on the actual direct labour hours worked: 39,000 hours * $6 = $234,000. Since the actual overhead costs were $218,000, the difference is $234,000 - $218,000 = $16,000 over applied.

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