Question

Bayest Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 58,500 actual direct labor-hours and incurred $452,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 61,000 direct labor-hours during the year and incur $396,500 of manufacturing overhead cost. The Corporation's manufacturing overhead cost for the year was:

Answer 1

Answer:

Applied overhead = $380,250

Under applied by = $71,750

Explanation:

Firstly, we know that the formula for overhead rate is ;

Overhead rate = Cost of manufacturing overhead/Cost driver

It also means that to get the predetermined overhead rate, the expected cost will be distributed along a cost driver. Hence;

Labor hours = $396,500/61,000 = $6.5

The above rate would then be applied to the actual labor hour for the period

= $58,500 × $6.5 = $380,250

It therefore means that the applied overhead for the period is $380,250

We will now compare the applied overhead with actual overhead

= $380,250 - $452,000

= ($71,750)

It means that the overhead was under applied as the actual overhead cost was higher.