Crinks Corporation uses direct labor-hours in its predetermined overhead rate. A

Question

Crinks Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 11,200 hours and the total estimated manufacturing overhead was $259,840. At the end of the year, actual direct labor-hours for the year were 10,800 hours and the actual manufacturing overhead for the year was $254,840. Overhead at the end of the year was:

A.

$4,280 overapplied

B.

$9,280 overapplied

C.

$9,280 underapplied

D.

$4,280 underapplied

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base
= $259,840 ÷ 11,200 direct labor-hours
= $23.20 per direct labor-hour

A.

$4,280 overapplied

B.

$9,280 overapplied

C.

$9,280 underapplied

D.

$4,280 underapplied

Explanation / Answer

Predetermined Overhead rate is the estimated manufacturing overhead divided by the total direct labour hours which in the current case is $259,840/ 11,200 = 23.2 per direct labour hours.

Now actual hours is 10,800 so applied overhead is 10,800*23.2 = $250,560

Actual overhead is $254,840

Under applied overhead is $ 4,280

Answer is D.

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