Sawyer Manufacturing Corporation uses a predetermined overhead rate based on dir

Question

Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 57,000 actual direct labor-hours and incurred $345,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 55,000 direct labor-hours during the year and incur $330,000 of manufacturing overhead cost. The Corporation's manufacturing overhead cost for the year was: Multiple Choice overapplied by $15,000 underapplied by $15,000 overapplied by $3,000 underapplied by $3,000

Explanation / Answer

Predetermined overhead rate=Estimated overhead/Estimated direct labor hours

=(330,000/55000)=$6/direct labor hour

Hence applied overhead=Predetermined overhead rate*Actual direct labor hours

=(6*57000)=$342000

Hence since applied overhead is less than actual overheads;

underapplied overhead=(345000-342000)=$3000.

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