Mark Corporation estimates its manufacturing overhead to be $140,000 and its dir

Question

Mark Corporation estimates its manufacturing overhead to be $140,000 and its direct labor costs to be $250,000 for Year 1. The actual direct labor costs for the year include:


Job 301


$60,000

Job 302


82,000

Job 303


98,000


The actual manufacturing overhead was $136,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs by using predetermined rates. What was the over- or underapplied manufacturing overhead for Year 1?
$1,600 overapplied
$1,600 underapplied
$5,440 overapplied
$5,440 underapplied

Explanation / Answer

overhead rate = overhead estimated/direct labor cost estimated = 140,000/250,000 = $0.56 per direct labor dollar Actual labor cost: 60,00 + 82,000 + 98,000 = $240,000 Overhead applied: 240,000*.56 = $134,400 actual overhead - applied overhead = 136,000 - 134,400 = $1,600 Since actual was greater than applied, it was underapplied Answer: $1,600 underapplied

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