ECONOMICS

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COST ACCOUNTING

MANUFACTURING OVERHEAD

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
BB Company estimated the manufacturing overhead to be RM280, 000 and the direct labour hours to be 14, 000 for the year 2018. The actual manufacturing overhead was RM120, 000 and the actual direct labour hours were 9, 000. Overhead is applied on direct labour hours. Is overhead under-applied or over-applied and by how much?
A
Overhead is under-applied by RM50, 000
B
Overhead is under-applied by RM60, 000
C
Overhead is over-applied by RM50, 000
D
Overhead is over-applied by RM60, 000
Explanation: 

Detailed explanation-1: -You may also calculate the overhead rate based on direct labor hours. Divide the overhead costs by the direct labor hours over the same measurement period. In the example, the overhead rate is $20 for each direct labor hour ($2, 000/100).

Detailed explanation-2: -You can calculate applied manufacturing overhead by multiplying the overhead allocation rate by the number of hours worked or machinery used. So if your allocation rate is $25 and your employee works for three hours on the product, your applied manufacturing overhead for this product would be $75.

Detailed explanation-3: -Manufacturing Overhead Formula To get a percentage, divide by your monthly sales and multiply that number by 100. Here’s the manufacturing overhead equation: Manufacturing Overhead Costs / Number of Sales x 100 = Percentage.

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