Mango Company applies overhead based on direct labor costs. For the current year, Mango Company estimated total overhead costs to be $500,000, and direct labor costs to be $250,000. Actual overhead costs for the year totaled $520,000, and actual direct labor costs totaled $280,000. At year-end, the balance in the Factory Overhead account is a:

Under/over applied overhead= $40,000 overallocated

Explanation:

Giving the following information:

Estimated overhead= $500,000

Estimated direct labor costs= $250,000

Actual overhead costs for the year totaled $520,000, and actual direct labor costs totaled $280,000.

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 500,000/250,000

Predetermined manufacturing overhead rate= $2 per direct labor cost

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 2*280,000= $560,000

Finally, we can determine the over/under allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 520,000 - 560,000= $40,000 overallocated

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