Lawrence industries manufactures wooden backyard playground equipment. lawrence estimated $ 1 comma 785 comma 000 of manufacturing overhead and $ 2 comma 180 comma 000 of direct labor cost for the year. after the year was over, the accounting records indicated that the company had actually incurred $ 1 comma 700 comma 000 of manufacturing overhead and $ 2 comma 650 comma 000 of direct labor cost.

overhead rate:       0.8188

applied overhead: 2,169,820

overapplication:       469,820

Explanation:

predetermined overhead:

We distribute the overhead over the cost driver. In this case labor cost:

1,785,000 / 2,180,000 = 0.8188

each dollar of labor cost generated 0.8188 of overhead.

applied overhead:

actual labor cost x rate:

2,650,000 x 0.8188 = 2,169,820

actual overhead:        1,700,000

overapplication of overhead:  469,820

we capitalize more cost than actual incurred we should decrease our COGS