Tulip uses a job costing system that allocates overhead as a percentage of direct labour costs. The budget for this year was; direct materials $60,000, direct labour $30,000, overhead $45,000. The actual costs for this year were; direct materials $50,000, direct labour $35,000, overhead $45,000. How much overhead was over/under allocated?

Question

Quizplus · Accepted Answer

The overhead rate is calculated as $45,000 / $30,000 = 150% of direct labour costs. The actual direct labour cost was $35,000, so the allocated overhead should be 150% of $35,000, which is $52,500. The actual overhead was $45,000, so the overhead was overallocated by $52,500 - $45,000 = $7,500.

Tulip Uses a Job Costing System That Allocates Overhead as a Percentage