Discuss the over- or underapplied factory overhead


Overhead Analysis and Causes for Variances. The Lowell Manufacturing Company uses predetermined departmental overhead rates. The rate for the Fabricating Department is $4 per direct labor hour. Direct labor employees are paid $4.50 an hour. A total of 15,000 direct labor hours were worked in the department during the year. Total overhead charged to the department for supervisors' salaries, indirect labor, labor fringe benefit costs, indirect materials, service department costs, etc. was $65,000.


(1) The over- or underapplied factory overhead.

(2) An analysis of factors affecting actual and applied overhead revealed the following situations. For each situation, indicate the effect on the amount of over- or underapplied overhead. Discuss each item separately as though the other factors had not occurred :

(a) One hundred overtime hours were worked by direct laborers for which timeand- a-half was paid. Overtime premium, the amount in excess of the regular rate, is charged as overhead to the department in which the overtime is worked.

(b) A $.15 per hour wage increase was granted November 1. Direct labor hours worked in November and December totaled 2,500.

(c) The company cafeteria incurred a $1,500 loss which was distributed to producing departments on the basis of number of employees.

Nine of the 120 employees work in the Fabricating Department. No loss was anticipated when predetermined overhead rates were computed.

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Accounting Basics: Discuss the over- or underapplied factory overhead
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