Baka Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $239,700 and 4,700 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $242,000 and actual direct labor-hours were 4,600.The overhead for the year was:
A) $5,100 underapplied
B) $7,400 underapplied
C) $5,100 overapplied
D) $7,400 overapplied

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as total estimated overhead divided by estimated direct labor-hours, which is $239,700 / 4,700 = $51 per direct labor-hour. The applied overhead for the year is then the predetermined rate multiplied by the actual direct labor-hours, which is $51 * 4,600 = $234,600. The actual overhead was $242,000, so the difference between the actual overhead and the applied overhead is $242,000 - $234,600 = $7,400, indicating that the overhead was underapplied.

Baka Corporation Applies Manufacturing Overhead on the Basis of Direct