The overhead budget, based on a budgeted volume of 100 000 direct labour hours, was $255 000. Actual overhead costs amounted to $270 000 and actual direct labour hours were 105 000. By how much was overhead under or overapplied?

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as follows:
$255,000 / 100,000 direct labour hours = $2.55 per direct labour hour

The actual overhead cost incurred is $270,000, which is higher than the budgeted overhead cost of $255,000. However, the actual direct labour hours worked are also higher than the budgeted hours, meaning that more overhead cost would be expected.

To calculate the amount of overhead applied, we multiply the actual direct labour hours by the predetermined overhead rate:
$2.55 per direct labour hour x 105,000 actual direct labour hours = $267,750 applied overhead

To find if there is under or overapplied overhead, we compare the applied overhead to the actual overhead:
$270,000 actual overhead - $267,750 applied overhead = $2,250 underapplied overhead

Therefore, the answer is C, $2250 underapplied.

The Overhead Budget, Based on a Budgeted Volume of 100