Minstrel Manufacturing uses a job order costing system.During one month Minstrel purchased $198,000 of raw materials on credit;issued materials to production of $195,000 of which $30,000 were indirect.Minstrel incurred a factory payroll of $150,000,paid in cash,of which $40,000 was indirect labor.Minstrel uses a predetermined overhead application rate of 150% of direct labor cost.If Minstrel incurred total overhead costs of $167,800 during the month,compute the amount of under- or overapplied overhead:
A)$2,800 overapplied.
B)$17,800 underapplied.
C)$2,800 underapplied.
D)$17,800 overapplied.
E)$57,200 overapplieD.$167,800 - ($110,000 * 1.5)= $2,800

Question

Quizplus · Accepted Answer

To calculate the overhead applied, we need to first calculate the direct labor cost, which is $110,000 ($150,000 - $40,000). The overhead applied would then be $165,000 ($110,000 x 150%). The total overhead costs incurred were $167,800, so there is an underapplied overhead of $2,800 ($165,000 - $167,800). Therefore, the correct answer is option C.

Minstrel Manufacturing Uses a Job Order Costing System