Question

A Company uses a predetermined overhead rate based on direct labor hours to allocate manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $150,000 and direct labor hours would be 10,000. The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labor hours. The cost records for the year will show:________.

a. over-allocated overhead of $6,000.
b. under-allocated overhead of $30,000.
c. under-allocated overhead of $6,000.
d. over-allocated overhead of $30,000.

Answer 1

Under allocated overhead $6,000

Step-by-step explanation:

The under or over allocated overhead is the difference between the allocated overhead and the actual overhead.

Allocated overhead = OAR × Actual hours

POAR = Budgeted overhead/Budgeted labour hours

= $150,000/10,000

= $15 per hour

$

Allocated Overhead- ($15× 12,000) 180,000

Actual overhead 186,000

Under allocated overhead 6,000