Motorsports, Inc. had a predetermined overhead rate of $2 per direct labor hour. The direct labor hours were estimated to be 25,000. The actual manufacturing overhead incurred was $47,000 and 24,000 actual direct labor hours were worked. How much was overhead over/under applied last year?
A)$1,000 underapplied
B)$2,000 underapplied
C)$1,000 overapplied
D)$3,000 overapplied

Question

Quizplus · Accepted Answer

Predetermined overhead rate = Total Estimated Overhead / Total Estimated Direct Labor Hours
$2 = Total Estimated Overhead / 25,000
Total Estimated Overhead = $50,000

Overhead applied = Predetermined overhead rate x Actual direct labor hours worked
Overhead applied = $2 x 24,000 = $48,000

Overhead over/under applied = Actual manufacturing overhead incurred - Overhead applied
Overhead over/under applied = $47,000 - $48,000 = $1,000 overapplied