Question - Overhead Accounting for Control and for Product Costing

The pickle department of a major food manufacturer has an overhead rate of $5 per direct-labor hour, based on expected variable overhead of $150,000 per year, expected fixed overhead of $350,000 per year, and expected direct-labor hours of 100,000 per year.

Data for the year's operations follow:

                                 Direct-Labor              Overhead Costs

                                 Hours Used                Incurred*

First six months          55,000                      $262,000

Last six months          41,000                       236,500

*Fixed costs incurred were exactly equal to budgeted amounts throughout the year.

1. What is the underapplied or overapplied overhead for each six-month period? Label your answer as underapplied or overapplied.

2. Explain briefly (not more than 50 words for each part) the probable causes for the underapplied or overapplied overhead. Focus on variable and fixed costs separately. Give the exact figures attributable to the causes you cite.