Alex Company uses predetermined departmental overhead rates. The rate for the Fabricating Department is $4 per direct labor hour. Direct labor employees are paid $10.50 per hour. A total of 15,000 direct labor hours were worked in the department during the year. Total factory overhead charged to the department for supervisors' salaries, indirect labor, labor fringe benefit costs, indirect materials, and service department costs was $65,000.
Required:
(1) Determine the over- or under applied factory overhead.
(2) Determine the effect on the amount of over- or under applied factory overhead in each of the following situations. Discuss each item separately, disregarding the other items.
(a) Direct laborers worked 100 overtime hours for which time and a half was paid. Overtime premium, the amount in excess of the regular rate, is charged as factory overhead to the department in which the overtime is worked.
(b) A 35-cents-per-hour wage increase was granted November 1. Direct labor hours worked in November and December totaled 2,500.
(c) The company cafeteria incurred a $1,500 loss, which was distributed to producing departments on the basis of number of employees. Nine of the 120 employees work in the Fabricating Department. No loss was anticipated when predetermined overhead rates were computed.