Freeman Company uses a predetermined overhead rate based ondirect labor-hours to

Question

Freeman Company uses a predetermined overhead rate based ondirect labor-hours to apply manufacturing overhead to jobs. At thebeginning of the year, the company estimated manufacturing overheadwould be $150,000 and direct labor-hours would be 10,000. Theactual figures for the year were $186,000 for manufacturingoverhead and 12,000 direct labor-hours. The cost records for theyear will show:

A.      Overapplied overhead of$30,000

B.      B. underapplied overhead of$30,000

C.      Underapplied overhead of$6,000

Explanation / Answer

Basis of OH Calculation: Estimated manufacturing overhead would be $150,000 and directlabor-hours would be 10,000. Thus OH rate is $150,000/10,000 = $15 per DIrect LabourHour
Actual DL hrs used is 12000 As Budgeted OH will be 12000*$15 = $180,000 Actual OH applied is $186,000 SO Overapplied OH is 186000-6000 = $6000 U(nfavorable)

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