Bard Manufacturing uses a job order cost accounting system. During one month Bard purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Bard incurred a factory payroll of $150,000, paid in cash, of which $40,000 is classified as indirect labor. Bard uses a predetermined overhead application rate of 150% of direct labor cost. If Bard incurred total overhead costs of $167,800 during the month, compute the amount of under- or overapplied overhead:

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The applied overhead is calculated as 150% of direct labor costs. Direct labor is $110,000 ($150,000 total payroll - $40,000 indirect labor). Applied overhead is $165,000 (150% of $110,000). The actual overhead incurred is $167,800. The difference is $2,800 underapplied ($167,800 - $165,000).

Bard Manufacturing Uses a Job Order Cost Accounting System