Snappy Company has a job-order cost system and uses a predetermined overhead rate based on direct Labour-hours to apply manufacturing overhead to jobs. Manufacturing overhead cost and direct Labour-hours were estimated at £100,000 and 40,000 hours, respectively, for the year. In July, Job #334 was completed at a cost of £5,000 in direct materials and £2,400 in direct Labour. The Labour rate is £6 per hour. By the end of the year, Snappy had worked a total of 45,000 direct Labour-hours and had incurred £110,250 actual manufacturing overhead cost.
-Snappy's manufacturing overhead for the year was:
A)£10,250 underapplied.
B)£12,500 overapplied.
C)£12,500 underapplied.
D)£2,250 overapplieD.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as estimated overhead cost divided by estimated direct labor hours, which is £100,000 / 40,000 hours = £2.50 per direct labor hour. By the end of the year, Snappy worked a total of 45,000 direct labor hours, so the applied overhead is 45,000 hours * £2.50 = £112,500. The actual manufacturing overhead cost was £110,250, so the overhead was overapplied by £112,500 - £110,250 = £2,250.

Snappy Company Has a Job-Order Cost System and Uses a Predetermined