Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 13

Calculating Over- or Underapplied Overhead

Tony’s Textiles uses a predetermined factory overhead rate based on machine-hours. For May, Tony’s budgeted overhead was $210,000 based on a budgeted volume of 35,000 machine-hours. Actual overhead amounted to $227,500 with actual machine-hours totaling 38,500.

Required

What was over- or underapplied manufacturing overhead in May?

Step 1 of 4

Manufacturing overhead:

Manufacturing overhead is indirect cost related to manufacturing. All manufacturing cost other than direct material and direct labor are classified into manufacturing overhead. Example of manufacturing overhead is indirect material, indirect labor, fuel cost, factory utilities, factory rent, factory property taxes etc.