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4 July, 17:16

Minstrel Manufacturing uses a job order costing system. During one month, Minstrel purchased $201,000 of raw materials on credit; issued materials to production of $198,000 of which $27,000 were indirect. Minstrel incurred a factory payroll of $153,000, of which $37,000 was indirect labor. Minstrel uses a predetermined overhead application rate of 150% of direct labor cost. If Minstrel incurred total overhead costs of $180,000 during the month, compute the amount of under - or overapplied overhead:

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  1. 4 July, 20:20
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    Underapplied overhead = $6,000

    Explanation:

    Giving the following information:

    Direct labor = $153,000 - $37,000 = $116,000

    The predetermined overhead application rate = 150% of direct labor cost.

    Actual overhead = $180,000

    First, we need to allocate overhead:

    Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

    Allocated MOH = 116,000*1.5 = $174,000

    Now, we can calculate the over/under allocation:

    Under/over applied overhead = real overhead - allocated overhead

    Under/over applied overhead = 180,000 - 174,000

    Under/over applied overhead = $6,000 underallocated
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