Question

Dukes Corporation used a predetermined overhead rate this year of $2 per direct labor-hour, based on an estimate 20,000 direct labor-hours to be worked during the year. Actual costs and activity during the year were:

Actual manufacturing overhead cost incurred $ 38,000
Actual direct labor-hours worked 18,500
The overapplied or underapplied manufacturing for the year was:
Multiple Choice
a. $3.000 underapplied
b. $1,000 overapplied
c. $3.000 overapplied
d. $1,000 underapplied

Answer 1

The overapplied or underapplied manufacturing overhead for Dukes Corporation was $2,000 underapplied.

Step-by-step explanation:

The predetermined overhead rate for Dukes Corporation was $2 per direct labor-hour, based on an estimate of 20,000 direct labor-hours. However, the actual direct labor-hours worked during the year were 18,500. To calculate the overapplied or underapplied manufacturing overhead, we need to compare the actual costs incurred to the costs that were estimated.

1. Estimated manufacturing overhead = Predetermined overhead rate x Estimated direct labor-hours = $2 x 20,000 = $40,000
2. Actual manufacturing overhead = $38,000

Overapplied or underapplied manufacturing overhead = Actual manufacturing overhead - Estimated manufacturing overhead = $38,000 - $40,000 = -$2,000

Therefore, the correct answer is: $2,000 underapplied.

The overapplied or underapplied manufacturing overhead for the year was $1,000 underapplied. To determine this, first calculate the applied manufacturing overhead by multiplying the predetermined overhead rate by the actual direct labor-hours worked, which is $2 per direct labor-hour × 18,500 hours = $37,000. Then, compare this to the actual manufacturing overhead cost incurred, which is $38,000. The difference, $38,000 - $37,000, equals to $1,000 underapplied, which means that the actual overhead was higher than what was applied.