Homework Answers
Answer : $ 70000 credit balance
First let's calculate predetermined overhead rate
Predetermined overhead rate = Estimated overhead ÷ Estimated direct labour cost
= $ 700000 ÷ $ 350000
= $ 2
Let's calculate applied overhead now
Applied overhead = predetermined overhead rate × actual direct labour cost
= $ 2 × $ 390000
= $ 780000
Actual overhead = $ 710000
Here actual overhead is less than applied overhead. Therefore it is overapplied overheads.
Overapplied overheads = $ 780000 - $ 710000
= $ 70000
This $ 70000 will be shown as a credit balance in factory overhead account.
| Factory overhead account | |||
| Description | Debit | Description | Credit |
| Actual overhead cost | $710000 | Applied overhead cost | $780000 |
| Balance c/d | $70000 | ||
| $780000 | $780000 |
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