Question

Mango Company applies overhead based on direct labor costs. For the current year, Mango Company estimated total overhead costs to be $480,000, and direct labor costs to be $240,000. Actual overhead costs for the year totaled $501,000, and actual direct labor costs totaled $269,000. At year-end, Factory Overhead account is:a. Overapplied by $10, 000 b. Overapplied by $170, 000. c. Underapplied by $10, 000.

Answer 1

Answer:

The correct answer is $37,000 overapplied

Explanation:

Giving the following information:

Mango Company applies overhead based on direct labor costs. For the current year, Mango Company estimated total overhead costs to be $480,000, and direct labor costs to be $240,000. Actual overhead costs for the year totaled $501,000, and actual direct labor costs totaled $269,000.

First, we need to calculate the allocated overhead for the period. To allocate we need to determine the estimated overhead rate:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 480,000/240,000= $2 per direct labor dollar

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 2*269,00= $538,000

Over/under allocation= real MOH - allocated MOH

Over/under allocation= 501,000 - 538,000= $37,000 overallocated