Pine Publishing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. At the beginning of the year the Corporation estimated its total manufacturing overhead cost at $500,000 and its direct labor-hours at 125,000 hours. The actual overhead cost incurred during the year was $450,000 and the actual direct labor-hours incurred on jobs during the year was 115,000 hours. The manufacturing overhead for the year would be:
A) $10,000 underapplied
B) $10,000 overapplied
C) $50,000 underapplied
D) $50,000 overapplied

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated at the beginning of the year by dividing the estimated total manufacturing overhead cost by the estimated total direct labor-hours, which is $500,000 / 125,000 hours = $4 per direct labor-hour. The applied manufacturing overhead for the year is then calculated by multiplying this rate by the actual direct labor-hours incurred, which is $4 * 115,000 hours = $460,000. Since the actual overhead cost incurred was $450,000, the manufacturing overhead was overapplied by $460,000 - $450,000 = $10,000.

Pine Publishing Corporation Uses a Predetermined Overhead Rate Based on Direct