Karvel Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. For the month of August, Karvel estimated total manufacturing overhead costs at $300,000 and total machine-hours at 75,000 hours. Actual results for the period were manufacturing overhead costs of $290,000 and 75,000 machine-hours. As a result, Karvel would have:
A) applied more overhead to Work in Process than the actual amount of overhead cost for the year.
B) applied less overhead to Work in Process than the actual amount of overhead cost for the year.
C) applied an amount of overhead to Work in Process that was equal to the actual amount of overhead.
D) found it necessary to recalculate the predetermined overhead rate.

Question

Quizplus · Accepted Answer

Karvel would have applied more overhead to Work in Process than the actual amount of overhead cost because the predetermined overhead rate is based on estimated costs and hours, leading to an application of $300,000 in overhead when the actual cost was $290,000.

Karvel Corporation Uses a Predetermined Overhead Rate Based on Machine-Hours