The Hampshire Company produces 9 volt batteries and AAA batteries. The Hampshire Company uses a plant-wide rate to apply overhead based on direct labour hours. The following data is given:
$\begin{array}{|c|c|}
\hline \text { Actual overhead } & \$ 325,000 \
\hline \text { Estimated overhead } & \$ 350,000 \
\hline \text { Estimated activity: } & \
\hline \text { 9 volt battery } & 100,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \text { direct labour hours } \\hline \text { Actual activity: } & \
\hline 9 \text { volt battery } & 125,000 \quad \text { direct labour hours } \
\hline \text { AAA battery } & 400,000 \quad \text { direct labour hours } \\hline \text { Units produced: } & \
\hline 9 \text { volt battery } & 500,000 \
\hline \text { AAA battery } & 250,000 \
\hline
\end{array}$
-Refer to the figure.How much was overhead overapplied or underapplied?

Question

Quizplus · Accepted Answer

The overhead application rate is calculated based on estimated figures: $\frac{\$350,000}{500,000 \text{ direct labour hours}} = \$0.70$ per direct labour hour. The actual direct labour hours used are $125,000 + 400,000 = 525,000$. Thus, the applied overhead is $525,000 \times \$0.70 = \$367,500$. The actual overhead is \$325,000, so the overhead was overapplied by $\$367,500 - \$325,000 = \$42,500$.

The Hampshire Company Produces 9 Volt Batteries and AAA Batteries