LampArt Co. makes specialty table lamps. Manufacturing overhead is applied to pr

Question

LampArt Co. makes specialty table lamps. Manufacturing overhead is applied to production on a direct labor hours basis. During November, the first month of the company's fiscal year, $173,250 of manufacturing overhead was applied to Work in Process Inventory using predetermined overhead application rate of $15 per direct labor hour.

a.) Calculate the number of hours of direct labor used during November.

b.) Actual manufacturing overhead costs incurred during November totaled $166,425. Calculate the number of over-under applied overhead for November.

c.) Identify two possible explanations for the over- or under applied overhead.

d.) Explain the accounting appropriate for the over- or under applied overhead at the end of November.

Explanation / Answer

A.) 11,550 labor hours B.) $6,825 overapplied overhead C.) Either an overestimation of overhead per labor hour OR there were more direct labor hours than budgeted D.) You would apply the net overhead and adjust next years overhead allocation. 173,250 / 15 = 11,550 labor hours 166,425 - 173,250 = 6825 over applied

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