Question

Nil Co. uses a predetermine overhead rate based on direct labor cost to apply manufacturing overhead to jobs. For the year ended December 31, Nil's estimated manufacturing overhead was $600,000, based on an estimated volume of 50,000 direct labor hours, at a direct labor rate of $6.00 per hour. Actual manufacturing overhead amounted to $620,000 with actual direct labor cost of $325,000 & 60,000 in actual direct labor hours. For the year, manufacturing overhead was:A) underapplied by $20,000.B) underapplied by $22,000.C) overapplied by $30,000.D) underapplied by $30,000.

Answer 1

Answer:

The correct answer is C: overapplied by $30.000

Explanation:

Giving the following information:

For the year ended December 31:

Estimated manufacturing overhead was $600,000,

Estimated volume of 50,000 direct labor hours.

Direct labor rate of $6.00 per hour.

Actual manufacturing overhead amounted to $620,000

Actual direct labor cost of $325,000

Direct labor hours= 60,000

Estimated overhead rate= 600000/(50000h*$6)= 2

Allocated overhead= overhead rate* direct labor cost= 2*325000= $650000

Actual overhead- allocated overhead= 620000- 650000= 30000 (overapplied).

It is overapplied because the actual cost was under the estimated.