Cribb Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 17,900 hours and the total estimated manufacturing overhead was $341,890. At the end of the year, actual direct labor-hours for the year were 16,700 hours and the actual manufacturing overhead for the year was $336,890. Overhead at the end of the year was:
A)$22,920 underapplied
B)$17,920 overapplied
C)$17,920 underapplied
D)$22,920 overapplied

Question

Quizplus · Accepted Answer

To calculate the predetermined overhead rate, we divide the total estimated manufacturing overhead by the estimated direct labor-hours:
$341,890 ÷ 17,900 = $19.11 per direct labor-hour

To calculate the overhead applied during the year, we multiply the actual direct labor-hours by the predetermined overhead rate:
$19.11 per direct labor-hour x 16,700 actual direct labor-hours = $319,237.

The amount of overhead overapplied or underapplied is the difference between the actual manufacturing overhead and the overhead applied during the year:
$336,890 - $319,237 = $17,653 underapplied

Therefore, the best choice is C: $17,920 underapplied, as it is closest to the calculated amount of $17,653 underapplied.

Cribb Corporation Uses Direct Labor-Hours in Its Predetermined Overhead Rate