The Pike Supply Company distributes overhead based on direct labour dollars.The estimated manufacturing overhead for the year was $484,000 and the estimated direct labour dollars for the year were $110,000.Indicate the amount of underapplied or overapplied overhead if actual direct labour was $118,000 and actual manufacturing overhead was $497,400:

Question

Quizplus · Accepted Answer

The predetermined manufacturing overhead rate = Estimated manufacturing overhead / Estimated direct labour dollars = $484,000 / $110,000 = $4.4 per direct labour dollar.
 
Actual manufacturing overhead = $497,400
Actual direct labour = $118,000

Applied manufacturing overhead = Actual direct labour * Predetermined overhead rate = $118,000 * $4.4 = $519,200

The difference between the applied overhead and the actual overhead is $21,800 overapplied (actual manufacturing overhead < applied manufacturing overhead). Therefore, the answer is B.

The Pike Supply Company Distributes Overhead Based on Direct Labour