Osborn Manufacturing uses a predetermined overhead rate of $19.40 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $256,080 of total manufacturing overhead for an estimated activity level of 13,200 direct labor-hours. The company incurred actual total manufacturing overhead costs of $251,000 and 12,700 total direct labor-hours during the period. Required:1. Determine the amount of underapplied or overapplied manufacturing overhead for the period.

The amount of underapplied overhead=$4,620

Explanation:

Overhead is over applied when the overhead that was applied is greater than the overhead that was actually incurred. However, overhead is under applied when the overhead that was applied is lower than the overhead that was actually incurred.

The amount of underapplied or overapplied manufacturing overhead for the period can be expressed as;

U/O=I-A ... equation 1

where;

U/O=under applied or over applied overhead

I=overhead incurred

A=overhead applied

and

Overhead incurred=$251,000

Overhead applied=total hours worked*predetermined overhead rate

where;

total hours worked=12,700

predetermined overhead rate=$19.40

replacing;

Overhead applied = (12,700*19.4) = $246,380

Substitute values in equation 1 above to solve for the under applied or over applied overhead as shown below;

U/O=I-A ... equation 1

where;

U/O=unknown, to be determined

I=$251,000

A=$246,380

substituting;

U/O = (251,000-246,380) = $4,620

The amount of underapplied overhead=$4,620