Question

The Love Corporation applies overhead to work in process based on direct labor hours. Love estimates manufacturing overhead for the following period to be $600,000 and labor hours to total 30,000. If actual manufacturing overhead is $620,000 and actual labor hours total 30,600, manufacturing overhead is:

O $8,000 underapplied.

O $12,000 overapplied.

O $12,156 underapplied.

O $20,000 overapplied.

Answer 1

Manufacturing overhead is $8,000 overapplied when comparing the actual manufacturing overhead costs to the overhead applied using the predetermined overhead rate.

Step-by-step explanation:

The question involves calculating whether manufacturing overhead is underapplied or overapplied based on estimated and actual figures.

The predetermined overhead rate is determined by dividing estimated manufacturing overheads by the total estimated labor hours. In this case, the rate is $20 per hour ($600,000 / 30,000 hours). Actual manufacturing overhead incurred is $620,000, while the actual labor hours are 30,600. To find the overhead applied, we multiply the actual labor hours by the predetermined overhead rate (30,600 hours × $20/hour = $612,000).

Since the actual overhead ($620,000) is more than the overhead applied ($612,000), we have an overapplication. Specifically, overhead is overapplied by $8,000 ($620,000 - $612,000).