Question

Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $456,000, and direct labor costs to be $2,280,000. Actual overhead costs for the year totaled $422,000, and actual direct labor costs totaled $1,940,000. At year-end, the balance in the Factory Overhead account is a:.

Answer 1

$34,000 (Debit)

Step-by-step explanation:

Estimated total overhead costs = $456,000

Estimated direct labor costs = $2,280,000

Actual overhead costs= $422,000

Actual direct labor costs= $1,940,000

To calculate the factory overhead, we need to first calculate Estimated overhead rate.

Estimated overhead rate = Estimated total overhead costs / Estimated direct labor costs

= $456,000 / $2,280,000

= 0.2

= 20%

Therefore;

Actual Factory overhead = Actual direct labor cost × application rate

= $1,940,000 × 20%

= $388,000

We can get the balance in the overhead account as shown below;

Balance = Actual overhead cost - Actual cost that should be applied

= $422,000 - $388,000

= $34,000 (Debit).