Baker Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $210,600 and 6,000 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $209,000 and actual direct labor-hours were 5,980.

The overhead for the year was:

a.$702 underapplied

b.$898 underapplied

c.$702 overapplied

d.$898 overapplied

d.$898 overapplied

Explanation:

Overheads are applied using predetermined overhead rate, which is calculated using estimated overhead and estimated activity on which overheads are applied.

As per given data

Estimated overhead = $210,600

Estimated direct labor hour = 6,000 direct labor hours

Predetermined overhead rate = $210,000 / 6,000 = $35.1

Applied overhead = Predetermined overhead rate x Actual direct labor hours

Applied overhead = $35.1 x 5,980 hours = $209,898

Under / Over applied overhead = Actual overhead - Applied overhead

Under / Over applied overhead = $209,000 - 209,898 = - $898

The overhead is over applied by $898