Figure 4-5 The Hampshire Company produces 9 volt batteries and AAA batteries.The Hampshire Company uses a plantwide rate to apply overhead based on direct labor hours.The following data is given:

- Refer to Figure 4-5.How much was overhead over/underapplied?

Question

Figure 4-5 The Hampshire Company produces 9 volt batteries and AAA batteries.The Hampshire Company uses a plantwide rate to apply overhead based on direct labor hours.The following data is given:

- Refer to Figure 4-5.How much was overhead over/underapplied?

Quizplus · Accepted Answer

To calculate overhead applied, we need to multiply the predetermined overhead rate (based on direct labor hours) by the actual direct labor hours used. 
Predetermined overhead rate = $900,000 / (60,000 direct labor hours) = $15 per direct labor hour 
Overhead applied for 9 volt batteries = 15 × 25,000 = $375,000 
Overhead applied for AAA batteries = 15 × 35,000 = $525,000 
Total overhead applied = $375,000 + $525,000 = $900,000 
Actual overhead incurred = $942,500 
Overhead over/underapplied = actual overhead incurred - overhead applied = $942,500 - $900,000 = $42,500 
Therefore, the answer is C) $42,500.

Figure 4-5 the Hampshire Company Produces 9 Volt Batteries and AAA