Answer: “over-applied by $30,000”
<span>We know that
the Manufacturing Overhead is applied using direct labor cost as the driver. The predetermined application rate using the direct labor
cost is calculated:</span>
Rate = Estimated Overhead/Estimated Driver
Rate = $600,000/($6.00 x 50,000)
Rate = $600,000/$300,000
Rate = $2 of overhead is applied for every $1 of direct labor cost
Since the actual direct labor cost is $325,000, therefore:
Manufacturing Overhead = $325,000 x $2
Manufacturing Overhead = $650,000
Since actual Manufacturing Overhead is only equal to $620,000, this means that
it is “over-applied by $30,000”
