Answer:
The correct answer is C: underapplied by $2,500
Explanation:
Giving the following information:
Martinez Manufacturing applies overhead based on direct labor hours.
The company estimates that their overhead for the year will be $180,000 and that they will use 72,000 direct labor hours.
During the year, Martinez Manufacturing used 75,000 direct labor hours and actual overhead costs were $190,000
We need to calculate if the overhead was under or over applied and in what amount.
Predetermined overhead rate= total estimated manufacturing overhead for the period/ total amount of allocation base
Predetermined overhead rate= 180000/72000= $2.5 an hour
Now, we can calculate the amount of overhead allocated:
Overhead allocated= 75000 hours*2.5= $187,500
Over/under applied= actual overhead - allocated overhead= 190,000 - 185,500= $2,500 underapplied
