Hilltop Manufacturing uses a predetermined manufacturing overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. Selected data about the company's operations follows: By how much was manufacturing overhead overallocated or underallocated for the year?

Question

Hilltop Manufacturing uses a predetermined manufacturing overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. Selected data about the company's operations follows:  By how much was manufacturing overhead overallocated or underallocated for the year?

Quizplus · Accepted Answer

Using the predetermined manufacturing overhead rate of $8 per direct labor hour, we can calculate the expected manufacturing overhead as follows:
Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total direct labor hours
$8 per direct labor hour = $2,800,000 / 350,000 direct labor hours
Based on the actual amount of direct labor hours used in the year (375,000 hours), the expected manufacturing overhead for the year would be:
Expected manufacturing overhead = Actual direct labor hours × Predetermined overhead rate
Expected manufacturing overhead = 375,000 direct labor hours × $8 per direct labor hour
Expected manufacturing overhead = $3,000,000
However, the actual manufacturing overhead incurred during the year was $2,840,000. Therefore, manufacturing overhead was overallocated by:
Overallocated manufacturing overhead = Expected manufacturing overhead – Actual manufacturing overhead
Overallocated manufacturing overhead = $3,000,000 – $2,840,000
Overallocated manufacturing overhead = $160,000

Hilltop Manufacturing Uses a Predetermined Manufacturing Overhead Rate Based on Direct