Beta Company uses a predetermined overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. The company estimated that it would incur $600,400 of manufacturing overhead during the year and that 150,100 direct labor hours would be worked. During the year, the company actually incurred manufacturing overhead costs of $582,200 and 135,400 direct labor hours were worked. By how much was manufacturing overhead overallocated or underallocated for the year? (Round intermediary calculations to the nearest cent and the final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead rate:

Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total direct labor hours
Predetermined overhead rate = $600,400 / 150,100 = $3.999 per direct labor hour

Next, we need to calculate the total manufacturing overhead applied to jobs during the year:

Total manufacturing overhead applied = Predetermined overhead rate x Actual direct labor hours worked
Total manufacturing overhead applied = $3.999 x 135,400 = $541,373.60

Finally, we can calculate the manufacturing overhead overallocated or underallocated:

Manufacturing overhead overallocated/underallocated = Actual manufacturing overhead costs incurred - Total manufacturing overhead applied
Manufacturing overhead overallocated/underallocated = $582,200 - $541,373.60 = $40,826.40

Since the resulting figure is positive, the manufacturing overhead was underallocated by $40,826. Therefore, the best answer is C) $40,600 underallocated (rounded to the nearest hundred).

Beta Company Uses a Predetermined Overhead Rate Based on Direct