Question

Tiffany charges manufacturing overhead to products by using a predetermined application rate, computed on the basis of labor hours. The following data pertain to the current year: Budgeted manufacturing overhead: $ 3,900,000
Actual manufacturing overhead: $ 3,917,000

Budgeted labor hours: 130,000

Actual labor hours: 132,300

Which of the following choices is the correct status of manufacturing overhead at year-end? Overapplied by $17,000. Underapplied by $17,000. Overapplied by $52,000. Underapplied by $52,000. Overapplied by $69,000.

Answer 1

Answer:

Overapplied by $52,000.

Explanation:

To know the application of the overhead we need to solve for the predetermined rate first:

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

we distribute the expected overhead over the expected cost driver. in this case, it is labor hours:

$ 3,900,000 / 130,000 labor hours  = $ 30 per hours

Now we calculate the aplication:

actual labor hours x rate:

132,300 x 30 = 3,969,000

Finally we compare with the actual overhead cost:

applied      -   actual

3,969,000 - 3,917,000 = 52,000

As the cost applied exceed the real cost, we overapplied the voerhead we capitalzie more cost than actual cost.

we face an overapplication of the overhead cost.