Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labor hour. The overhead rate is based on 10,000 hours. Actual results were: The over- or underapplied overhead was
A) $50,000 under
B) $10,000 over
C) $55,000 under
D) $20,000 over

Question

Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labor hour. The overhead rate is based on 10,000 hours. Actual results were:  The over- or underapplied overhead was
A) $50,000 under 
B) $10,000 over 
C) $55,000 under 
D) $20,000 over

Quizplus · Accepted Answer

To find the over- or underapplied overhead, we need to compare the actual overhead costs incurred to the overhead costs that should have been incurred based on the standard overhead rate.

Actual indirect costs = $215,000 
Budgeted indirect costs = $200,000 + ($15 x 10,000 DLH) = $350,000

Since actual costs are less than budgeted costs, we have an underapplied overhead:

Underapplied overhead = Budgeted overhead - Actual overhead 
Underapplied overhead = $350,000 - $215,000 
Underapplied overhead = $135,000

Therefore, the correct answer is C) $55,000 under.

Burkett Company Uses a Standard Cost System