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A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that factory overhead costs would be $360,000 and direct labor hours would be 30,000. Actual factory overhead costs incurred were $377,200, and actual direct labor hours were 36,000. What is the amount of overapplied or underapplied manufacturing overhead at the end of the year? a. $6,000 overapplied b. $54,800 overapplied c. $6,000 underapplied d. $54,800 underapplied

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Answer:

The correct answer is B.

Explanation:

Giving the following information:

At the beginning of the year, it estimated that factory overhead costs would be $360,000 and direct labor hours would be 30,000. Actual factory overhead costs incurred were $377,200, and actual direct labor hours were 36,000.

First, we need to calculate the estimated overhead rate:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 360,000/30,000= $12 per direct labor hour

Now, we can allocate overhead based on actual direct labor hours:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 12*36,000= $432,000

Finally, we will determine the under/over allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 377,200 - 432,000= $54,800 overapplied

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