Chapter 13, Problem 13.16E

Exercise 13.16

LO 5, 6

Manufacturing overhead-over/underapplied Creative Lighting, Inc., makes specialty table lamps. Manufacturing overhead is applied to production on a direct labor hours basis. During June, the first month of the company’s fiscal year, $56,520 of manufacturing overhead was applied to Work in Process Inventory using the predetermined overhead application rate of $6 per direct labor hour.

Required:

1. Calculate the number of hours of direct labor used during June.
2. Actual manufacturing overhead costs incurred during June totaled $49,340. Calculate the amount of over- or underapplied overhead for June.
3. Identify two possible explanations for the over- or underapplied overhead.
4. Explain the accounting appropriate for the over- or underapplied overhead at the end of June.