Wilson Enterprises applies overhead based on direct labor cost. The company estimates that their overhead for the year will be $240,000, and direct labor cost to be $300,000. Actual direct labor cost for Martinez Manufacturing was $316,000 and actual overhead costs were $254,000. At the end of the year, manufacturing overhead was:

Question

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead rate:

Predetermined Overhead Rate = Estimated Overhead / Estimated Direct Labor Cost
Predetermined Overhead Rate = $240,000 / $300,000
Predetermined Overhead Rate = $0.80 per direct labor dollar

Next, we can calculate the total overhead applied to Martinez Manufacturing:

Overhead Applied = Actual Direct Labor Cost x Predetermined Overhead Rate
Overhead Applied = $316,000 x $0.80
Overhead Applied = $252,800

Finally, we can calculate the difference between the overhead applied and the actual overhead costs:

Overhead Difference = Actual Overhead - Overhead Applied
Overhead Difference = $254,000 - $252,800
Overhead Difference = $1,200 underapplied

Therefore, the answer is D) Underapplied by $1,200.

Wilson Enterprises Applies Overhead Based on Direct Labor Cost