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Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $404,000, and direct labor costs to be $2,020,000. Actual overhead costs for the year totaled $383,000, and actual direct labor costs totaled $1,810,000. At year-end, the balance in the Factory Overhead account is a a. $404,000 Credit balance. b. $362,000 Debit balance. c. $21,000 Credit balance. d. $21,000 Debit balance. e. $383,000 Debit balance.

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Answer:

Overhead absorption rate = Budgeted overhead/Budgeted direct labour cost x 100

Overhead absorption rate = $404,000/$2,020,000 x 100

                                            = 20%

Factory overhead cost absorbed = 20% x $1,810,000

                                                     = $362,000

The correct answer is B ie $362,000 debit balance

Explanation:

In this question, there is need to calculate the overhead absorption rate. Then, we will calculate overhead absorbed by multiplying the overhead absorption rate by the actual direct labour cost.

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