Fortune Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs.The cost records for October will show: $$\begin{array} { | l | c | }
\hline \text { On October 1, the estimates for the month were: } & \
\hline \text { Manufacturing overhead } & \$ 17,000 \
\hline \text { Direct labor-hours } & 13,600 \
\hline \text { During october, the actual results were: } & \
\hline \text { Manufacturing overhead } & \$ 18,500 \
\hline \text { Direct labor-hours } & 12,000 \
\hline
\end{array}$$

Question

Fortune Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs.The cost records for October will show: $$\begin{array} { | l | c | } 
\hline \text { On October 1, the estimates for the month were: } & \
\hline \text { Manufacturing overhead } & \$ 17,000 \
\hline \text { Direct labor-hours } & 13,600 \
\hline \text { During october, the actual results were: } & \
\hline \text { Manufacturing overhead } & \$ 18,500 \
\hline \text { Direct labor-hours } & 12,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

As we do not have any information on the actual overhead cost and the total number of direct labor hours incurred during October, we cannot calculate the exact amount of overhead cost. Therefore, we cannot determine the accurate predetermined overhead rate for October.

If actual overhead costs incurred during October are less than the estimated overhead cost based on the predetermined overhead rate, then manufacturing overhead is said to be overapplied. Conversely, if actual overhead costs incurred during October are more than the estimated overhead cost based on the predetermined overhead rate, then manufacturing overhead is said to be underapplied.

Since we do not have any information on actual overhead costs and the total number of direct labor hours incurred during October, the only possible answer is D, i.e., underapplied overhead of $3,500. This is because the total amount of manufacturing overhead applied to the jobs is less than the actual overhead cost incurred during October.

Fortune Company Uses a Predetermined Overhead Rate Based on Direct