Question

Hilltop Manufacturing uses a predetermined manufacturing overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. Selected data about the company's operations follows:Actual manufacturing overhead cost $500,000Estimated manufacturing overhead cost $550,000Estimated direct labor cost $175,000Estimated direct labor hours 50,000Actual direct labor hours 60,000Estimated machine hours 40,000Actual machine hours 35,000By how much was manufacturing overhead overallocated or underallocated for the year?A) $50,000 underallocatedB) $160,000 overallocatedC) $100,000 underallocatedD) $50,000 overallocated

Answer 1

Answer:

B) $160,000 overallocated

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

we calcualte the predetermined manufacturing overhead rate by distribution the expected overhead cost over the cost Driver.

"Hilltop Manufacturing uses a predetermined manufacturing overhead rate based on direct labor hours"

In this case, it is the labor hours

550,000 / 50,000 = 11

Then we multiply this rate by the actual output of the driver:

11 x actual direct labor

11 x 60,000 = 660,000

New, we calcualte the application of overhead

660,000 - 500,000 = 160,000

It was overapplied by 160,000 as the actual cost were lower than expected.