Question

he TER Company uses a predetermined overhead rate based on normal capacity for allocating factory overhead to production. The normal capacity of the company's plant is 200,000 direct labour hours per year. Studies of factory overhead costs have revealed that manufacturing overhead is estimated to be $1,440,000 per year. Last year 190,000 labour hours were worked and total factory overhead costs actually incurred were $1,375,000.
The amount of over or under applied factory overhead last year was:

Select one:

a. $11,000 underapplied

b. $11,000 overapplied

c. $7,000 underapplied

d. $7,000 overapplied

e. None of the above

Answer 1

c. $7000 underapplied