Kirkaid Company recorded the following transactions for the just completed month:

a. $118,000 in raw materials were requisitioned for use in production. Of this amount, $89,000 was for direct materials and the remainder was for indirect materials.
b. Total labor wages of $142,000 were incurred. Of this amount, $122,000 was for direct labor and the remainder was for indirect labor.
c. Additional actual manufacturing overhead costs of $214,000 were incurred.
d. A total of $268,000 in manufacturing overhead was applied to jobs.
Required:
Determine the underapplied or overapplied overhead for the month.

The correct answer is $5,000.

Explanation:

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

Total raw material = $118,000

Direct material = $89,000

So, Indirect material = Total raw material - Direct material = $118,000 - $89,000

= $29,000

Total labor = $142,000

Direct labor = $122,000

So, Indirect labor = Total labor - Direct labor = $142,000 - $122,000

= $20,000

Additional actual manufacturing OH = $214,000

Applied manufacturing OH = $268,000

So, we can calculate the underapplied or overapplied overhead for the month by using following formula:

Underapplied or overapplied overhead = Applied manufacturing OH - Actual OH

= $268,000 - ( $29,000 + $20,000 + $214,000)

= $268,000 - $263,000

= $5,000

Hence, the overapplied overhead is $5,000.

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