Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $452,000, and direct labor costs to be $2,260,000. Actual overhead costs for the year totaled $419,000, and actual direct labor costs totaled $1,930,000. At year-end, Factory Overhead is:

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Business

Branden Hunt

12 September, 05:25

Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $452,000, and direct labor costs to be $2,260,000. Actual overhead costs for the year totaled $419,000, and actual direct labor costs totaled $1,930,000. At year-end, Factory Overhead is:

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Answers (1)

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Valeria Riddle · Answer 1

The correct answer is $33,000 (Debit).

Explanation:

According to the scenario, the given data are as follows:

Estimated total overhead costs = $452,000

Estimated direct labor cost = $2,260,000

Actual overhead cost = $419,000

Actual direct labor cost = $1,930,000

So, we can calculate factory overhead by the following formula:

First we calculate Estimated overhead rate:

Estimated OH rate = Estimated total overhead costs / Estimated direct labor cost

= $452,000 / $2,260,000 = 0.20

= 20%

Now we calculate actual application

Actual = Actual direct labor cost * Rate of application

= $1,930,000 * 20% = $386,000

So, the balance in OH account can be calculated as:

Balance = Actual overhead cost - Actual cost that should be applied

= $419,000 - $386,000

= $33,000

Hence, the correct answer is $33,000 (Debit).