Malcolm Company uses a predetermined overhead rate based on direct labor-hours t

Question

Malcolm Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. On September 1 the estimates for the month were Manufacturing overhead 17000 Direct labor-hours 13600 During September, the actual results were Manufacturing overhead 18500 Direct labor-hours 12000 The cost records for September will show Overapplied overhead of $1500 Underapplied overhead of $1500 Overapplied overhead of $3500 Underapplied overhead of $3500 Predetermined overhead rate= Estimated total manufacturing overhead+ Estimated total amount of the allocation base =$17000 + 13600 direct labor- hours=$1.25 per direct labor-hour

Explanation / Answer

Correct option (D).

Overhead applied = Actual hours x Pre-determined overhead rate = 12,000 x $1.25 = $15,000

Actual overhead = $18,500

Since actual overhead > Applied overhead, overhead has been under-applied.

Underapplied overhead = $(18,500 - 15,000) = $3,500

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