Naw materials of 52.o00 were sent fom the warehouse to the factory. The material

ID: 2429753 • Letter: N

Question

Naw materials of 52.o00 were sent fom the warehouse to the factory. The materials e slipe indinates thar 34,000 was classified as indirect materials Pactoy labor costs incurred were $45,000 of which $40,000 pertained to factory wages peyable and $5,000 pertained to employer payroll taxes payable. 4 Time tickets indicated an allocation of factory labor of $30,000 for direct labor and S15,000 for indirect labor s. Actual overhead costs incurred for the month were $19.000 for depreciation expense, $10,000 indirect materials and indirect labor above for property taxes payable, and $8,000 for services on a ccount, in addition to the Manufacturing overhead was applied at the rate of 180% of direct labor cost. Was manufacturing overhead over-or underapplied. By how much? You may use a T ccount to support your answer

Explanation / Answer

Calculation of under or over applied overhead

Since Manufacturing overheads are applied on estimation basis the actual manufacturing overheads may differ from applied overheads. The actual manufacturing overheads costs are known at the end of the period.

So, the different between actual manufacturing overhead costs and applied manufacturing overhead costs is called OVER OR UNDER APPLIED OVERHEAD.

If Applied Factory Overheads are less than the actual manufacturing overheads, the overheads are called under applied.

If Applied Factory Overheads are greater than the actual manufacturing overheads, the overheads are called over applied.

Predetermined Overhead Rate (GIVEN) = 180% of Direct Labor Cost

Applied Manufacturing Overheads = Actual Direct Labor Costs $30,000 x Overhead Rate 180%

= $54,000

Total Actual Manufacturing Overhead Costs incurred

Manufacturing Overhead Costs (Actual Incurred)

Indirect Materials

$4,000

Indirect labor

$15,000

Depreciation Expense

$19,000

Property taxes

$10,000

Services on Account

$8,000

Total Manufacturing Overhead Costs incurred

$56,000

Here, applied overheads are less than actual overheads incurred, it means the overheads are UNDER APPLIED by $2,000 ($56,000 - $54,000)

Manufacturing Overheads was UNDER APPLIED by $2,000

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