Walker Company applies manufacturing overhead based on direct labor hours. Information concerning manufacturing overhead and labor for the years as follows:
Actual manufacturing overhead $163,800
Estimated manufacturing overhead $158,600
Direct labor incurred 2,500 hours @ $22 = $55,000
Direct labor estimated 2,600 hours @ $21 = $54,600
How much is over or underapplied overhead at year end?

underapplied overhead at year end is $11,300

Explanation:

Estimated manufacturing overhead $158,600

Direct labor estimated 2,600 hours

Direct labor incurred 2,500 hours

Predetermined Overhead rate = Estimated manufacturing overhead / Estimated direct labor-hours

Predetermined Overhead rate = $158,600 / 2600 hours = $61 per labor hour

Applied Overhead = Predetermined Overhead rate x Labor hours incurred

Applied Overhead = $61 x 2500 hours = $152,500

Under / over applied overhead = Applied overhead - Actual manufacturing overhead

Under applied overhead = 152,500 - 163,800 = -11,300

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