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Chem Labs Inc. has entered into a contract with the provincial government to conduct some tests. The company analyzes the chemical and bacterial composition of

Chem Labs Inc. has entered into a contract with the provincial government to conduct some tests. The company analyzes the chemical and bacterial composition of well water in various municipalities. The contract price is $25.20 per test performed. The normal volume is 10,000 tests per month.

Each test requires two testing kits, which are $3.80 each at standard price. Direct labour to perform the test at standard is 10 minutes at $28.80 per hour.

At normal volume, the overhead costs for the month are as follows:

Variable overhead costs:

Indirect labour $ 18,000

Utilities 4,000

Labour-related costs 15,000

Laboratory maintenance 11,000

Total Variable O/H $ 48,000

Fixed overhead costs:

Supervisor $ 30,000

Amortization 28,000

Base utilities 9,000

Insurance 2,000

Total Fixed O/H $ 69,000

Total Overhead Expenses $ 117,000

The company applies all fixed and variable overhead based on direct labour-hours used.

During May, 9,000 tests were performed. The records show the following actual costs and production data:

Activity Actual cost

Number of test kits purchased 19,000 $ 70,300

Number of test kits used 18,500

Direct labour 1,623 hours $ 37,646

Total actual overhead costs:

Variable $ 45,200

Fixed $ 68,500

Test kits are kept in inventory at standard cost. At the end of May, no tests were in process.

Required

Calculate the total estimated Overhead cost and determine if there is over- or underapplied overhead.

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