Baker Corporation applies manufacturing overhead on the basis of direct labor-ho

Question

Baker Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $81,500 and 2,500 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $83,650 and actual direct labor-hours were 2,400.

$3,260 underapplied

$3,260 overapplied

$5,410 underapplied

$5,410 overapplied

Explanation / Answer

Estimated Overhead rate per labour hour = $81500/2500=$32.60

Applied Overhead = $ 32.60X 2400 labour hours =$78240

Actual Overhead = $ 83650

Difference between Actual Overhead and Applied Overhead = $ 83650- $ 78240 = $ 5410

Since Applied Overhead < Actual Overhead hence $ 5410 underapplied

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