Sawyer Manufacturing Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs. Last year, the company worked
57,000 actual direct labour hours and incurred $345,000 of actual manufacturing overhead cost. The Company had estimated that it would work 55,000 direct labour hours during the year and incur $330,000 of manufacturing overhead cost. The company's manufacturing overhead cost for the year was:
A)overapplied by $3,000.
B)underapplied by $3,000.
C)overapplied by $15,000.
D)underapplied by $15,000.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as estimated overhead cost divided by estimated direct labor hours, which is $330,000 / 55,000 = $6 per hour. Applied overhead is $6 * 57,000 = $342,000. Actual overhead was $345,000, so the overhead was underapplied by $345,000 - $342,000 = $3,000.

Sawyer Manufacturing Company Uses a Predetermined Overhead Rate Based on Direct