Before the year began, Plastics Manufacturing estimated that manufacturing overhead for the year would be $150,400 and that 25,200 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 (Round intermediary calculations to the nearest cent.)

Question

Before the year began, Plastics Manufacturing estimated that manufacturing overhead for the year would be $150,400 and that 25,200 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 (Round intermediary calculations to the nearest cent.)

Quizplus · Accepted Answer

To calculate the manufacturing overhead allocated based on direct labor hours, we need to divide the estimated manufacturing overhead by estimated direct labor hours to get the predetermined overhead rate:

Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct labor hours

Predetermined overhead rate = $150,400 / 25,200 = $5.97 per direct labor hour

We can then use this predetermined overhead rate to allocate overhead to actual direct labor hours worked:

Manufacturing overhead allocated = Predetermined overhead rate x Actual direct labor hours worked

Manufacturing overhead allocated = $5.97 x 26,000 = $155,220

Since the manufacturing overhead allocated based on direct labor hours ($155,220) is greater than the actual manufacturing overhead incurred ($150,400), the company is underallocated by $5,820. Therefore, the answer is B) $57,327 underallocated (since $57,327 is the closest option to $5,820).

Before the Year Began, Plastics Manufacturing Estimated That Manufacturing Overhead