A manufacturing company applies factory overhead based on direct labor hours. At the beginning of the year, it estimated that factory overhead costs would be $360,000 and direct labor hours would be 30,000. Actual factory overhead costs incurred were $377,200, and actual direct labor hours were 36,000. What is the amount of overapplied or underapplied manufacturing overhead at the end of the year?

Over-applied overheads=  $54,800.00

Explanation:

Overheads are charged to units produced by the means of using an estimated overhead absorption rate. This rate is computed using budgeted overhead and budgeted activity level.

As a result of this, overhead charged to total units product might be over or under absorbed compared to the actual amount incurred.

Overhead absorption rate = budgeted Overhead/Budgeted labour hours

                                           = $360,000/30,000 direct labour hour

                                            = $12 per hour

Absorbed overhead= OAR× actual labour hours

                                 =  12×  36,000

                                     =  432,000.00

Over absorbed(applied) overhead = is the difference between actual overhead and absorbed

                                $432,000.00 -  $377,200

                               Over-applied overheads=  $54,800.00

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