Before the year began, Plastics Manufacturing estimated that manufacturing overhead for the year would be $150,000 and that 25,000 direct labor hours would be worked. Actual results for the year included the following: If the company allocates manufacturing overhead based on direct labor hours, the manufacturing overhead for the year would have been

Question

Before the year began, Plastics Manufacturing estimated that manufacturing overhead for the year would be $150,000 and that 25,000 direct labor hours would be worked. Actual results for the year included the following:  If the company allocates manufacturing overhead based on direct labor hours, the manufacturing overhead for the year would have been

Quizplus · Accepted Answer

The predetermined manufacturing overhead rate based on direct labor hours would be $150,000/25,000 hours = $6 per direct labor hour. 
Actual manufacturing overhead for the year is $174,000. 
The amount of manufacturing overhead allocated based on actual direct labor hours worked would be: 
20,000 DLH x $6 per DLH = $120,000 
The difference between the actual manufacturing overhead and the allocated manufacturing overhead is: 
$174,000 - $120,000 = $54,000 
Since actual manufacturing overhead is greater than allocated manufacturing overhead, there is an underallocation of overhead. The amount of underallocation is $54,000, which is answer choice B.

Before the Year Began, Plastics Manufacturing Estimated That Manufacturing Overhead