Question

# Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead...

 Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 41,000 actual direct labor-hours and incurred \$624,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 39,000 direct labor-hours during the year and incur \$585,000 of manufacturing overhead cost. The Corporation's manufacturing overhead cost for the year was:

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

=  \$585,000 / 39,000 DL hours = \$15 per DL hour

= 41,000 DL hours * \$15 per DL hour = \$615,000

Actual manufacturing overhead = \$624,000 (given)

= \$624,000 - \$615,000 = \$9000

Conclusion : Since actual manufacturing overhead cost is more than applied manufacturing overhead cost , thus the Corporation's manufacturing overhead cost for the year was underapplied by \$9,000

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