Over-under-applied overhead computation Estimated cost and operating data for three companies for the upcoming year follow:

Company X

Direct labor-hours...80,000

Machine-hours30,000

Direct material cost..$400,000

Manufacturing overhead cost..$536,000

Predetermined overhead rates is computed using the following allocation base for company X:

Allocation Base

Company X...Direct labor-hours

1. Compute each companys predetermined overhead rate for company X

2. Assume that Company X works on three jobs during the upcoming year. Direct labor-hours recorded by job are: Job 418, 12,000 hours; Job 419, 36,000 hours; and Job 420, 30,000 hours. How much overhead will the company apply to Work in Process for the year?

ANSWER: 1. Predetermined rate= 536,000 / 80,000 = 6.7/DLH

2.

Actual overhead costs incurred 530,000 ???

Overhead cost applied to Work in progress:

78,000* actual hours 6.70 per hour 522,600

Underapplied overhead cost 7,400

*12,000 hrs. + 36,000 hrs. + 30,000 hrs. = 78,000 hrs. QUESTION: Why is actual overhead costs incurred 530,000 and not as given 536,000 ??