Forbes Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. At the beginning of the period, the Corporation estimated manufacturing overhead would be $18,000 and direct labor-hours would be 15,000. The actual figures were $19,500 for manufacturing overhead and 16,000 direct labor-hours. The cost records for the period will show:
A) overapplied manufacturing overhead of $300
B) overapplied manufacturing overhead of $1,500
C) underapplied manufacturing overhead of $1,500
D) underapplied manufacturing overhead of $300

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as estimated manufacturing overhead divided by estimated direct labor-hours, which is $18,000 / 15,000 hours = $1.20 per direct labor-hour. The applied manufacturing overhead is then the predetermined rate multiplied by the actual direct labor-hours, which is $1.20 * 16,000 hours = $19,200. The actual manufacturing overhead was $19,500, so the difference is $19,500 - $19,200 = $300 underapplied manufacturing overhead.

Forbes Corporation Uses a Predetermined Overhead Rate Based on Direct