Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labour hour. The overhead rate is based on 10,000 hours. Actual results were: Standard direct labour hours 9,000
Actual direct labour hours 10,000
Fixed overhead $190,000
Variable overhead $185,000
The over- or underapplied overhead was:
A)$50,000 under
B)$10,000 over
C)$60,000 under
D)$20,000 over

Question

Quizplus · Accepted Answer

The budgeted total overhead cost is calculated as $200,000 + ($15 x 10,000) = $350,000. The overhead rate is calculated as $350,000 / 10,000 = $35 per direct labour hour.
The actual overhead incurred is the sum of the fixed and variable overheads, which is $190,000 + $185,000 = $375,000.
The overhead applied is calculated as $35 x 10,000 = $350,000 (10,000 is the actual direct labour hours). Therefore, the overhead is overapplied by $375,000 - $350,000 = $25,000. 
So, the correct answer is option C where $60,000 underapplied is incorrect.

Burkett Company Uses a Standard Cost System