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 $110,250 and 3,500 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $112,200 and actual direct labor-hours were 3,250.

$9,825 underapplied

$7,875 underapplied

$7,875 overapplied

$9,825 overapplied

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 $110,250 and 3,500 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $112,200 and actual direct labor-hours were 3,250.

Explanation / Answer

Predetermined overhead rate=total estimated manufacturing overhead / estimated direct labor-hours

=(110250/3500)=$31.5/direct labor hour

Hence overhead applied=Predetermined overhead rate*Actual direct labor hours

=(31.5*3250)=$102375

Hence overhead underapplied=(112200-102375)=$9825

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