Elm Street Company incurred $440,000 direct labor costs this year.Manufacturing overhead was applied at a predetermined rate of $5.50 per direct labor hour.The average hourly wage rate was $16 per hour.If actual overhead incurred was $160,000, what was the amount of overapplied or underapplied overhead?

Question

Quizplus · Accepted Answer

First, we need to calculate the total number of direct labor hours worked, which is equal to the total direct labor costs divided by the average hourly wage rate:
$440,000 / $16 per hour = 27,500 direct labor hours

Next, we can calculate the total overhead applied using the predetermined rate:
$5.50 per direct labor hour x 27,500 direct labor hours = $151,250

Finally, we can calculate the amount of overapplied or underapplied overhead by comparing the actual overhead incurred to the overhead applied:
Actual overhead incurred - overhead applied = $160,000 - $151,250 = $8,750 underapplied

Therefore, the answer is B, $8,750 underapplied.

Elm Street Company Incurred $440,000 Direct Labor Costs This Year