Question

Before the year began, Milkway Manufacturing estimated that manufacturing overhead for the year would be $175,000 and that 25,000 direct labor hours would be worked. Actual results for the year included the following:Actual manufacturing overhead cost: $182,000Actual direct labor hours: 20,000If the company allocates manufacturing overhead based on direct labor hours, the manufacturing overhead for the year would have been

Answer 1

Answer:

Manufacturing overheads allocated based on hourly rate = $140,000

Explanation:

As for the information provided, the following is available,

Standard or budgeted manufacturing overhead = $175,000 based on working of 25,000 labor hours.

That means budgeted rate for the activity = $175,000/25,000 = $7 per hour.

Provided actual overheads = $182,000 for 20,000 hours.

Had the overheads been charged based on standard basis of hourly rate, overheads would be = 20,000 $\times$ $7 = $140,000

As with this it means actual overheads are over absorbed, by $182,000 - $140,000 = $42,000