During 2011, company incurred the following direct labor costs: January $15,000

Question

During 2011, company incurred the following direct labor costs: January $15,000 and February $30,000. WNC uses a predetermined overhead rate of 120% of direct labor cost. Estimated overhead for the 2 months, respectively, totaled $19,500 and $35,700. Actual overhead for the 2 months, respectively, totaled $18,400 and $32,500. Determine if overhead is over- or under-applied for each of the two months and the respective amounts. Clues Overhead applied Jan: Feb: Over- or under-applied: Jan: Feb:

During 2011, company incurred the following direct labor costs: January $15,000 and February $30,000. WNC uses a predetermined overhead rate of 120% of direct labor cost. Estimated overhead for the 2 months, respectively, totaled $19,500 and $35,700. Actual overhead for the 2 months, respectively, totaled $18,400 and $32,500. Determine if overhead is over- or under-applied for each of the two months and the respective amounts. Clues Overhead applied Jan: Feb: Over- or under-applied: Jan: Feb:

Explanation / Answer

Hi,

Please find the answer as follows:

January:

Actual Overhead = 18400

Applied Overhead = 15000*120% = 18000

Overhead UnderApplied = 18400 - 18000 = 400

February

Actual Overhead = 32500

Applied Overhead = 30000*120% = 36000

Overhead OverApplied = 32500 - 36000 = 3500

Thanks.

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