Derbyshire Ltd distributes overhead based on direct labour dollars. The estimated manufacturing overhead for the year was $800 000 and the estimated direct labour dollars for the year were $160 000. Indicate the amount of underapplied or overapplied overhead if actual direct labour was $135 000 and actual manufacturing overhead was $658 000.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as estimated manufacturing overhead divided by estimated direct labour dollars, which is $800,000 / $160,000 = $5 per direct labour dollar. The applied overhead based on actual direct labour dollars is $5 * $135,000 = $675,000. Since the actual manufacturing overhead was $658,000, the difference is $675,000 - $658,000 = $17,000 overapplied.

Derbyshire Ltd Distributes Overhead Based on Direct Labour Dollars