Martinez Manufacturing applies overhead based on direct labor hours. The company estimates that their overhead for the year will be $180,000, and that they will use 72,000 direct labor hours. During the year, Martinez Manufacturing actually used 71,000 direct labor hours and actual overhead costs were $184,000. At the end of the year, manufacturing overhead was:

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as estimated overhead divided by estimated direct labor hours, which is $180,000 / 72,000 hours = $2.50 per direct labor hour. The applied overhead for the actual 71,000 direct labor hours used is 71,000 hours * $2.50 = $177,500. Since the actual overhead costs were $184,000, the overhead was underapplied by $184,000 - $177,500 = $6,500.

Martinez Manufacturing Applies Overhead Based on Direct Labor Hours