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

Homework Answers

Answer #1

Estimated manufacturing overhead = $240,000

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

Actual manufacturing overhead = $185,000

Under applied manufacturing overhead = Actual manufacturing overhead- Applied manufacturing overhead

= 185,000-168,000

= $17,000

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

Second option is correct.

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