Easy Decorating uses a job order costing system to collect the costs of its inte

Question

Easy Decorating uses a job order costing system to collect the costs of its interior decorating business. Each client's consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below are data for the current year.
Budgeted overhead $960,000
Actual overhead $982,800
Budgeted decorator hours 40,000
Actual decorator hours 40,500

The company uses Operating Overhead in place of Manufacturing Overhead.

Prepare the entry to apply the overhead for the year.
Determine whether the overhead was under- or overapplied and by how much.

Explanation / Answer

The company will have allocated overhead based on the budget - so for every hour spent on a job they would have allocated ($960,000/40,000hrs) = $24 They actual worked 40,500 hours, so they allocated $972,000 (40,500hrs x $24)

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