Minstrel Manufacturing uses a job order costing system. During one month, Minstrel purchased $204,000 of raw materials on credit; issued materials to production of $201,000 of which $24,000 were indirect. Minstrel incurred a factory payroll of $156,000, of which $34,000 was indirect labor. Minstrel uses a predetermined overhead application rate of 150% of direct labor cost. If Minstrel incurred total overhead costs of $193,000 during the month, compute the amount of under- or overapplied overhead:

The correct answer is Under applied OH of $10,000.

Explanation:

According to the scenario, the computation of the given data are as follows:

we can calculate the under or over applied OH by using following formula:

Over / Under applied OH = Applied OH - Actual OH incurred

Where, Applied OH = Labor costs incurred  × Application rate

= ($156,000 - $34,000) × 150%

= $122,000 × 150% = $183,000

So, by putting the value in the formula, we get

Over / Under applied OH = $183,000 - $193,000

= -$10,000 ( Negative sign shows Under applied)

So, Under applied OH = $10,000.

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