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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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# Let's compute underapplied or overapplied overhead

### 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 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 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: 3 years ago.
Category: Multiple Problems
Expert:  Mr. Gregory White replied 3 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 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: 4918
Experience: M.A., M.S. Education / Educational Administration

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