Nexus Corporation uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. Last year, the company's estimated manufacturing overhead was $1,200,000 and its estimated level of activity was 50,000 direct labor-hours. The company's direct labor wage rate is $12 per hour. Actual manufacturing overhead amounted to $1,240,000, with actual direct labor cost of $650,000. For the year, manufacturing overhead was:
A) overapplied by $60,000.
B) underapplied by $60,000.
C) overapplied by $40,000.
D) underapplied by $44,000.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is $1,200,000 / 50,000 direct labor-hours = $24 per direct labor-hour. Actual manufacturing overhead was $1,240,000, and actual direct labor cost was $650,000. Therefore, the amount of overhead applied to jobs was $650,000 * $24 = $1,200,000. The manufacturing overhead was overapplied by $1,240,000 - $1,200,000 = $40,000.

Nexus Corporation Uses a Predetermined Overhead Rate Based on Direct