Meger Manufacturing uses the direct labor cost method for applying factory overhead to production.The budgeted direct labor cost and factory overhead for the previous fiscal year were $1,000,000 and $800,000,respectively.Actual direct labor cost and factory overhead were $1,100,000 and $825,000,respectively. What is the amount of under- or overapplied factory overhead?
A)$25,000 overapplied
B)$55,000 overapplied
C)$80,000 overapplied
D)$50,000 underapplied

Question

Quizplus · Accepted Answer

The predetermined overhead rate can be calculated as follows:
Predetermined overhead rate = Budgeted factory overhead / Budgeted direct labor cost = $800,000 / $1,000,000 = 0.8
The applied factory overhead for the actual direct labor cost can be calculated as follows:
Applied factory overhead = Actual direct labor cost x Predetermined overhead rate = $1,100,000 x 0.8 = $880,000
The difference between the applied and actual factory overhead is the amount of overapplied or underapplied factory overhead:
Overapplied factory overhead = Applied factory overhead - Actual factory overhead = $880,000 - $825,000 = $55,000 
Therefore, the answer is B) $55,000 overapplied.

Meger Manufacturing Uses the Direct Labor Cost Method for Applying