Question

Estimated data for Lorien Company for Year 1 are as follows. Total manufacturing overhead $650,000 Direct labor hours 130,000 hours Actual data for Lorien Company for Year 1 are as follows. Total manufacturing overhead $500,000 Direct labor hours 110,000 hours The manufacturing overhead rate is determined on the basis of direct labor hours. Which ONE of the following statements is TRUE? Applied overhead was MORE than actual overhead by $150,000 Applied overhead was LESS than actual overhead by $10,000 Applied overhead was LESS than actual overhead by $50,000 Applied overhead was MORE than actual overhead by $50,000 Applied overhead was LESS than actual overhead by $150,000 Applied overhead was MORE than actual overhead by $10,000

Answer 1

Predetermined overhead rate = Estimated manufacturing overhead/ Estimated direct labor hours

= 650,000/130,000

= $5 per direct labor hour

Actual direct labor hours = 110,000

Applied overhead = Actual direct labor hour x Predetermined overhead rate

= 110,000 x 5

= $550,000

Actual overhead = $500,000

Applied overhead was MORE than actual overhead by $50,000 (Applied overhead - Actual overhead) (550,000-500,000)

fourth option is correct.

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