Everbuilt Company had no jobs in progress at the beginning of June and no beginn

Question

Everbuilt Company had no jobs in progress at the beginning of June and no beginning inventories. It started only two jobs during June—Job L and Job W. Job L was completed and sold by the end of June and Job W was incomplete at the end of June. The company uses a plantwide predetermined overhead rate based on direct labor-hours. The following additional information is available for the company as a whole and for Jobs L and W (all data and questions relate to the month of June):

Estimated total fixed manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . . . . .        $30,000

Estimated variable manufacturing overhead per

direct labor-hour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.00

Estimated total direct labor hours to be worked. . . . . . . . . . . . . . . . . . . . . . . . .        6,000

Total actual manufacturing overhead costs incurred. . . . . . . . . . . . . . . . . . . . .         $47,500

Job L             Job W

Direct materials. . . . . . . . . . . . . . . . . . . . . . $39,000           $24,000

Direct labor cost. . . . . . . . . . . . . . . . . . . . . . $62,000           $22,500

Actual direct labor hours worked. . . . . . . .    4,200             1,500

What is the amount of underapplied or overapplied overhead?

please give step by step instructions

Explanation / Answer

Estimated Variable Manufacturing Overhead per direct labor-hour = $3.00
Estimated Fixed Manufacturing Overhead = $30,000
Estimated direct labor-hours = 6,000

Estimated Manufacturing Overhead = Estimated Variable Manufacturing Overhead per direct labor-hour * Estimated direct labor-hours + Estimated Fixed Manufacturing Overhead
Estimated Manufacturing Overhead = $3.00 * 6,000 + $30,000
Estimated Manufacturing Overhead = $48,000

Predetermined Overhead Rate = Estimated Manufacturing Overhead / Estimated direct labor-hours
Predetermined Overhead Rate = $48,000 / 6,000
Predetermined Overhead Rate = $8.00

Actual direct labor-hours worked = Actual direct labor-hours worked under Job L + Actual direct labor-hours worked under Job W
Actual direct labor-hours worked = 4,200 + 1,500
Actual direct labor-hours worked = 5,700

Manufacturing Overhead applied = Predetermined Overhead Rate * Actual direct labor-hours worked
Manufacturing Overhead applied = $8.00 * 5,700
Manufacturing Overhead applied = $45,600

Underapplied Manufacturing Overhead = Actual Manufacturing Overhead - Manufacturing Overhead applied
Underapplied Manufacturing Overhead = $47,500 - $45,600
Underapplied Manufacturing Overhead = $1,900

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