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:

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Answer #1

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

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

Applied manufacturing overhead = Actual DL hours * Predetermined overhead rate

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

Actual manufacturing overhead = $624,000 (given)

Underapplied manufacturing overhead = Actual manufacturing overhead -  Applied manufacturing overhead

= $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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