Minstrel Manufacturing uses a job order costing system. During one month, Minstrel purchased $201,000 of raw materials on credit; issued materials to production of $198,000 of which $27,000 were indirect. Minstrel incurred a factory payroll of $153,000, of which $37,000 was indirect labor. Minstrel uses a predetermined overhead application rate of 150% of direct labor cost. If Minstrel incurred total overhead costs of $180,000 during the month, compute the amount of under - or overapplied overhead:

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Business

Siena

3 August, 21:05

Minstrel Manufacturing uses a job order costing system. During one month, Minstrel purchased $201,000 of raw materials on credit; issued materials to production of $198,000 of which $27,000 were indirect. Minstrel incurred a factory payroll of $153,000, of which $37,000 was indirect labor. Minstrel uses a predetermined overhead application rate of 150% of direct labor cost. If Minstrel incurred total overhead costs of $180,000 during the month, compute the amount of under - or overapplied overhead:

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Lilah Hess · Answer 1

Underapplied overhead = $6,000

Explanation:

Giving the following information:

Direct labor = $153,000 - $37,000 = $116,000

The predetermined overhead application rate = 150% of direct labor cost.

Actual overhead = $180,000

First, we need to allocate overhead:

Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

Allocated MOH = 116,000*1.5 = $174,000

Now, we can calculate the over/under allocation:

Under/over applied overhead = real overhead - allocated overhead

Under/over applied overhead = 180,000 - 174,000

Under/over applied overhead = $6,000 underallocated