Question

# Your Company uses a predetermined overhead rate based on direct labor cost. The POR is 80%...

Your Company uses a predetermined overhead rate based on direct labor cost. The POR is 80% of direct labor costs. Use the following information to determine by how much the manufacturing overhead cost for the current year will be over or under applied.

 Direct labor-hours: Estimated for the year................ 24,000 Actual hours worked.................. 19,500 Direct labor cost: Estimated for the year................ \$300,000 Actual cost incurred................... \$210,000 Manufacturing overhead: Estimated for the year................ \$240,000 Actual cost incurred................... \$185,000

The manufacturing overhead cost for the current year will be:

 \$17,000 over-applied \$17,000 under-applied \$55,000 under-applied. \$55,000 over-applied

Estimated direct labor cost = \$300,000

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

= 240,000/300,000

= 80% of direct labor cost

Applied manufacturing overhead = Actual direct labor cost x Predetermined overhead rate

= 210,000 x 80%

= \$168,000

= 185,000-168,000

= \$17,000

The manufacturing overhead cost for the current year will be:\$17,000 under-applied

Second option is correct.