Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $400,000, and direct labor costs to be $2,000,000. Actual overhead costs for the year totaled $380,000, and actual direct labor costs totaled $1,800,000.
- At year-end, Factory Overhead is:

Question

Quizplus · Accepted Answer

Since overhead was applied based on the estimated direct labor cost, the actual overhead incurred was less than the overhead applied. This means that there was a shortfall in the overhead applied, resulting in an underapplied overhead amount of $20,000.

Morris Company Applies Overhead Based on Direct Labor Costs