Question

Babcox Manufacturing uses a predetermined manufacturing overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. Selected data about the company's operations follow:

Actual manufacturing overhead cost: $410,000
Estimated manufacturing overhead cost: $400,000
Estimated direct labor cost: $180,000
Estimated direct labor hours: 50,000
Actual direct labor hours: 55,000
Estimated machine hours: 80,000
Actual machine hours: 84,000
By how much was manufacturing overhead overallocated or underallocated for the year?

A) Overallocated by $10,000

B) Underallocated by $10,000

C) Overallocated by $20,000

D) Underallocated by $20,000

Answer 1

The manufacturing overhead was underallocated by $30,000 for the year.

Step-by-step explanation:

The manufacturing overhead is calculated using the predetermined manufacturing overhead rate based on direct labor hours. First, we need to calculate the predetermined rate using the estimated manufacturing overhead cost and the estimated direct labor hours:

Predetermined Overhead Rate = Estimated Manufacturing Overhead Cost / Estimated Direct Labor Hours
Predetermined Overhead Rate = $400,000 / 50,000 hours
Predetermined Overhead Rate = $8 per direct labor hour

Next, we can calculate the applied manufacturing overhead by multiplying the predetermined overhead rate by the actual direct labor hours:

Applied Manufacturing Overhead = Predetermined Overhead Rate x Actual Direct Labor Hours
Applied Manufacturing Overhead = $8 x 55,000 hours = $440,000

Finally, we can determine the amount of manufacturing overhead overallocated or underallocated for the year by comparing the applied overhead to the actual overhead:

Manufacturing Overhead Overallocated/Underallocated = Actual Manufacturing Overhead Cost - Applied Manufacturing Overhead
Manufacturing Overhead Overallocated/Underallocated = $410,000 - $440,000 = -$30,000