Mackinaw Manufacturing Corporation uses a predetermined overhead rate based on d

Question

Mackinaw Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 16,000 actual direct labor-hours and incurred $137,000 of actual manufacturing overhead cost. They had estimated at the beginning of the year that 15,000 direct labor-hours would be worked and $135,000 of manufacturing overhead costs incurred. The Corporation had calculated a predetermined overhead rate of $9 per direct labor-hour.

The Corporation's manufacturing overhead for the year was:

a.overapplied by $7,000

b.underapplied by $7,000

c.overapplied by $2,000

d.underapplied by $2,000

Explanation / Answer

The correct answer is option (a) i.e. overapplied by $7,000 Applies MOD = (9*16,000) = $144,000 Actual MOD = $137,0000 Overapplied MOH = $(144,000-137,000) = $7,000

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