Mirada Manufacturing produces pumps for residential swimming pools.For the year, management estimated that total manufacturing overhead would be $1,488,000.Management decided to use direct labor hours to apply manufacturing overhead and budgeted 62,000 direct labor hours.The balance in over- or underapplied overhead is deemed to be small.The following information was compiled before an adjustment had been made to close Manufacturing Overhead Control: For the year, manufacturing overhead was

Question

Mirada Manufacturing produces pumps for residential swimming pools.For the year, management estimated that total manufacturing overhead would be $1,488,000.Management decided to use direct labor hours to apply manufacturing overhead and budgeted 62,000 direct labor hours.The balance in over- or underapplied overhead is deemed to be small.The following information was compiled before an adjustment had been made to close Manufacturing Overhead Control:  For the year, manufacturing overhead was

Quizplus · Accepted Answer

To determine the over- or underapplied overhead, we need to compare the actual manufacturing overhead incurred to the budgeted manufacturing overhead based on direct labor hours. The formula is:

Actual Manufacturing Overhead - (Budgeted Overhead Rate x Actual Direct Labor Hours)

Using the information provided, we can calculate the budgeted overhead rate as:

Budgeted Manufacturing Overhead / Budgeted Direct Labor Hours = $1,488,000 / 62,000 = $24 per direct labor hour

We are not given the actual direct labor hours used, but we are told that the balance in over- or underapplied overhead is deemed to be small. This suggests that the adjustment needed to close Manufacturing Overhead Control is relatively small compared to the budgeted amount.

Therefore, the actual manufacturing overhead is likely close to the budgeted amount, resulting in a small over- or underapplied amount. Since the budgeted amount is $1,488,000 and the actual amount is likely close to this, we can conclude that the overhead is overapplied by the budget amount of $1,488,000 minus the small adjustment required. This gives us an overapplied amount of $220,704.

Therefore, the correct answer is B) $220,704 overapplied.

Mirada Manufacturing Produces Pumps for Residential Swimming Pools