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Mr. Gregory White
Mr. Gregory White, Master's Degree
Category: Multiple Problems
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Experience:  M.A., M.S. Education / Educational Administration
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Lets compute underapplied or overapplied overhead for our

Resolved Question:

Let's compute underapplied or overapplied overhead for our Pearly Company example. Recall the following information related to this example.

Estimated total overhead costs – $640,000
Estimated total direct labor hours – 160,000
Predetermined overhead rate – $4 per direct labor hour

Let’s assume the following.

Actual overhead – $650,000
Actual direct labor hours – 170,000

In this case, the overapplied overhead will be $30,000 and it is calculated as follows.

Step 1 – Calculate the overhead that was applied by taking the actual direct labor hours incurred times the predetermined overhead rate. 170,000 x $4 = $680,000

Step 2 – Compare actual manufacturing costs to the applied overhead for the accounting period = $650,000 - $680,000 = $30,000 OVERapplied

Now use:

Estimated total overhead costs – $340,000
Estimated total direct labor hours – 60,000
Predetermined overhead rate – $5 per direct labor hour

And the actuals were:

Actual overhead – $3300,000
Actual direct labor hours – 70,000

Compute the Over or Under Applied

Now you change the numbers again and compute it - are you noticing a pattern?
Submitted: 2 years ago.
Category: Multiple Problems
Expert:  replied 2 years ago.

Okay, I think the actual in the second one you posted was 330,000 - if not, let me know

 

70,000*5=350,000

330,000-350,000= $20,000 over applied

 

Changing the numbers again

 

Estimated total overhead costs - $720,000
Estimated total direct labor hours - 180,000
Predetermined overhead rate - $4 per direct labor hour

Let's assume the following.

Actual overhead - $730,000
Actual direct labor hours - 190,000

 

Therefore

190,000*4=760,000

730,000-760,000=$30,000 over applied

 

The pattern that is develop here is that the over applied is staying constant when the ratios are being held relatively constant.

Mr. Gregory White, Master's Degree
Satisfied Customers: 4737
Experience: M.A., M.S. Education / Educational Administration
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