Osborn Manufacturing uses a predetermined overhead rate of $19.70 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $265,950 of total manufacturing overhead for an estimated activity level of 13,500 direct labor-hours. The company actually incurred $260,000 of manufacturing overhead and 13,000 direct labor-hours during the period.

Required:

1. Determine the amount of underapplied or overapplied manufacturing overhead for the period.

Underapplied overhead = $3,900 underapplied

Explanation:

Giving the following information:

Osborn Manufacturing uses a predetermined overhead rate of $19.70 per direct labor-hour. The company incurred $260,000 of manufacturing overhead and 13,000 direct labor-hours during the period.

The under or overapplied overhead is the difference between the allocated overhead and the real overhead for the period.

First, we need to calculate the allocated overhead:

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

Allocated MOH = 19.7*13,000 = $256,100

Now, using the following formula, we calculate the over/under applied overhead:

Under/over applied overhead = real overhead - allocated overhead

Under/over applied overhead = 260,000 - 256,100 = $3,900 underapplied