Question

Bayest Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 60,500 actual direct labor-hours and incurred $532,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 61,800 direct labor-hours during the year and incur $451140 of manufacturing overhead cost. The Corporation's manufacturing overhead cost for the year was:

a.over applied by $90,350
b.under applied by $90,350
c.over applied by $80,860
d.under applied by $80,860

Answer 1

The correct answer is option (b).

Step-by-step explanation:

According to the scenario, computation of the given data are as follows:

first we calculate the predetermined OH, then

Predetermined OH rate = Estimated Manufacturing OH Cost ÷ Estimated Direct Labor Hours

= $451,140 ÷ 61,800

= 7.3

So, Applied MOH = 60,500 × 7.3 = $441,650

So, Underapplied OH = Actual MOH - Applied MOH

= $532,000 - $441,650

= $90,350 (under applied)