Sutherland Company listed the following data for 2016: Budgeted factory overhead

Question

Sutherland Company listed the following data for 2016: Budgeted factory overhead Budgeted direct labor hours Budgeted machine hours Actual factory overhead Actual direct labor hours Actual machine hours Round calculations to two significant digits $2,100,000 89,000 51,000 2,201,000 83,700 48,900 If overhead is applied based on direct labor hours, the overapplied/underapplied overhead is: O $214,376 underapplied. O $214,376 overapplied. O$256,312 underapplied. O $256,312 overapplied. O $225,680 underapplied

Explanation / Answer

Answer:

Correct answer is:

$225,680 under-applied

Calculations are as follows:

Given:

Budgeted overhead = $2,100,000

Budgeted direct labor hours = 89,000

Overhead is applied based on direct labor hour.

Hence, overhead rate per direct labor hour = $2,100,000 / 89,000 = $23.60 (rounded off to two significant digits)

Actual direct labor hour = 83,700

Hence, overhead applied = Actual direct labor hour * overhead rate per direct labor hour = 83,700 * $23.60 = $1,975,320

Actual overhead = $2,201,000

Overhead under-applied = Actual overhead - overhead applied = $2,201,000 - $1,975,320 = $225,680

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