Overhead Variances
The following calendar year information about the Acme Corporation is available on December 31:
|
Advertising expense
|
$28,800
|
|
Depreciation of factory equipment
|
43,320
|
|
Depreciation of office equipment
|
10,800
|
|
Direct labor
|
142,600
|
|
Factory utilities
|
35,650
|
|
Interest expense
|
6,650
|
|
Inventories, January 1:
|
|
|
Raw materials
|
3,450
|
|
Goods in process
|
17,250
|
|
Finished goods
|
35,650
|
|
Inventories, December 31:
|
|
|
Raw materials
|
2,300
|
|
Goods in process
|
20,700
|
|
Finished goods
|
31,050
|
|
Raw materials purchases
|
132,450
|
|
Rent on factory building
|
41,400
|
|
Indirect labor
|
51,750
|
|
Sales commissions
|
16,500
|
The company applies overhead on the basis of 125% of direct labor costs.
a. Calculate the amount of over- or under-applied overhead.
b. What is the significance of this over- or under-applied amount of overhead?