Mallet Music Company makes custom marimbas and xylophones. Since much of the wor

Question

Mallet Music Company makes custom marimbas and xylophones. Since much of the work on these musical instruments is done by hand, the company uses direct labor hours as its manufacturing overhead application base. The company’s annual budgeted overhead costs for 72,000 direct labor hours totaled $432,000.

Assume that during the year, the company incurred manufacturing overhead totaling $443,000 for 74,000 direct labor hours. By how much was manufacturing overhead under- or overapplied for the year?

Assume that during the year, the company incurred manufacturing overhead totaling $590,000 for 74,000 direct labor hours. By how much was manufacturing overhead under- or overapplied for the year?

Explanation / Answer

Mnufacturing overhead rate = Budgeted overhead cost / Direct labor hours
   = $432,000/ 72,000

= $6 per direct labor hours

Now if the company works for the 74,000 hours

manufacturing overhead apllied = Direct labor hours * Manufacturing overhead rate

= 74,000 * $6

= $444,000

Assumption 1

Actual manufacturing overhead incurred = $443,000

Manufacturing overhead is over applied by $1,000 as the amount of manufacturing overhead applied $444,000 is more than the amount of manufacturing overhead incurred $443,000.

Assumption 2

If the manufacturing overheads incurred are $590,000 for 74,000 direct labor hours

So here the manufacturing overhead is under applied by $590,000- $444,000= $146,000
As the manufacturing cost incurred is $590,000 is more than the manufacturing overhead applied $444,000

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