Park Avenue Co. applies overhead using direct labor hours as the allocation base
ID: 2529629 • Letter: P
Question
Park Avenue Co. applies overhead using direct labor hours as the allocation base (cost driver). The following information is available:
Expected direct labor hours 60,000
Actual direct labor hours 62,125
Expected overhead costs $1,800,000
Actual overhead costs incurred $1,781,000
8. How much total overhead was applied for the year?
a. $1,863,750 c. $1,633,876
b. $2,236,967 d. None of the above
9. Using the same data as question 8, how much was manufacturing overhead overapplied or underapplied for the year:
a. $ 56,399 underapplied
b. $ 72,882 overapplied
c. $ 99,582 underapplied
d. $ 82,750 overapplied
Explanation / Answer
Predetermined overhead rate= Expected overhead costs /Expected direct labor hours
=(1,800,000/60,000)=$30 per direct labor hour.
1.Overhead applied=Actual direct labor hour*Predetermined overhead rate
=(30*62125)=$1,863,750
2.Hence overhead overapplied=(1,863,750-1781000)=$82750(D).