Adams Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated total overhead of $392,400; materials of $408,000 and direct labor of $218,000. During the year Adams incurred $415,400 in materials costs, $410,800 in overhead costs and $222,000 in direct labor costs. Compute the amount of under- or overapplied overhead for the year.
Adams Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated total overhead of $392,400; materials of $408,000 and direct labor of $218,000. During the year Adams incurred $415,400 in materials costs, $410,800 in overhead costs and $222,000 in direct labor costs. Compute the amount of under- or overapplied overhead for the year.
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![### Overhead Allocation Computation Problem
**Adams Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated total overhead of $392,400; materials of $408,000 and direct labor of $218,000. During the year Adams incurred $415,400 in materials costs, $410,800 in overhead costs and $222,000 in direct labor costs. Compute the amount of under- or overapplied overhead for the year.**
---
#### Multiple Choice:
- [ ] $11,200 overapplied.
- [ ] $18,400 overapplied.
- [ ] $11,200 underapplied.
- [ ] $18,400 underapplied.
---
**Explanation:**
To solve this problem:
1. **Calculate the predetermined overhead rate:**
\[ \text{Predetermined Overhead Rate} = \frac{\text{Estimated Overhead}}{\text{Estimated Direct Labor Costs}} = \frac{392,400}{218,000} \approx 1.8 \text{ (or 180%)} \]
2. **Apply the overhead rate to actual direct labor costs to find applied overhead:**
\[ \text{Applied Overhead} = \text{Predetermined Overhead Rate} \times \text{Actual Direct Labor Costs} = 1.8 \times 222,000 = 399,600 \]
3. **Compare the applied overhead to the actual overhead incurred:**
\[ \text{Overhead Incurred} = 410,800 \]
\[ \text{Difference} = \text{Applied Overhead} - \text{Actual Overhead} = 399,600 - 410,800 = -11,200 \]
Since the difference is negative, it indicates underapplied overhead.
- Therefore, the correct answer is: $11,200 underapplied.
(Note: This screen content is from an educational quiz on overhead allocation methodology.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F513f67aa-7739-47c0-98db-8fe9a6d204ee%2F53df3422-f20d-467d-938b-d60d79252a0a%2F6826lg5_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Overhead Allocation Computation Problem
**Adams Manufacturing allocates overhead to production on the basis of direct labor costs. At the beginning of the year, Adams estimated total overhead of $392,400; materials of $408,000 and direct labor of $218,000. During the year Adams incurred $415,400 in materials costs, $410,800 in overhead costs and $222,000 in direct labor costs. Compute the amount of under- or overapplied overhead for the year.**
---
#### Multiple Choice:
- [ ] $11,200 overapplied.
- [ ] $18,400 overapplied.
- [ ] $11,200 underapplied.
- [ ] $18,400 underapplied.
---
**Explanation:**
To solve this problem:
1. **Calculate the predetermined overhead rate:**
\[ \text{Predetermined Overhead Rate} = \frac{\text{Estimated Overhead}}{\text{Estimated Direct Labor Costs}} = \frac{392,400}{218,000} \approx 1.8 \text{ (or 180%)} \]
2. **Apply the overhead rate to actual direct labor costs to find applied overhead:**
\[ \text{Applied Overhead} = \text{Predetermined Overhead Rate} \times \text{Actual Direct Labor Costs} = 1.8 \times 222,000 = 399,600 \]
3. **Compare the applied overhead to the actual overhead incurred:**
\[ \text{Overhead Incurred} = 410,800 \]
\[ \text{Difference} = \text{Applied Overhead} - \text{Actual Overhead} = 399,600 - 410,800 = -11,200 \]
Since the difference is negative, it indicates underapplied overhead.
- Therefore, the correct answer is: $11,200 underapplied.
(Note: This screen content is from an educational quiz on overhead allocation methodology.)
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