During 2013 Cotte Manufacturing expected Job No 59 to cost 3

During 2013, Cotte Manufacturing expected Job No. 59 to cost $300,000 of overhead, $500,000 of materials, and $200,000 in labor. Cotte applied overhead based on direct labor cost. Actual production required an overhead cost of $290,000, $550,000 in materials used, and $220,000 in labor. All of the goods were completed. How much is the amount of over- or underapplied overhead?

Solution

Solution:

Applied overhead based on Direct Labour Cost = Estimated Overhead/Estimated Direct Labour Cost

= $300,000/$200,000

= 1.5 or 150%

Actual Overhead = $290,000

Applied Overhead = Direct Labour Cost × Applied overhead based on Direct Labour Cost

= $220,000 × 150%

= $330,000

Over - or Underapplied Overhead = $290,000 -$330,000 = $40,000 Overapplied