Martinez Manufacturing applies overhead based on direct labor hours.The company estimates that their overhead for the year will be $180,000,and that they will use 72,000 direct labor hours.During the year,Martinez Manufacturing actually used 75,000 direct labor hours and actual overhead costs were $190,000.At the end of the year,manufacturing overhead was:

Question

Quizplus · Accepted Answer

To calculate if overhead was overapplied or underapplied, we need to use the following formula:

Applied Overhead = Actual Direct Labor Hours x Predetermined Overhead Rate

Predetermined Overhead Rate = Estimated Total Overhead / Estimated Direct Labor Hours

Predetermined Overhead Rate = $180,000 / 72,000 = $2.50 per direct labor hour

Applied Overhead = 75,000 actual direct labor hours x $2.50 per direct labor hour = $187,500

Actual overhead costs were $190,000, so:

Overhead applied ($187,500) < Actual overhead costs ($190,000)

Therefore, overhead was underapplied by $2,500.

Martinez Manufacturing Applies Overhead Based on Direct Labor Hours