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9 September, 17:04

Nil co. uses a predetermined factory overhead application rate based on direct labor cost. for the year ended december 31, nil's budgeted factory overhead was $600,000, based on a budgeted volume of 50,000 direct labor hours, at a standard direct labor rate of $6 per hour. actual factory overhead amounted to $620,000, with actual direct labor cost of $325,000. for the year, overapplied factory overhead was

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  1. 9 September, 17:24
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    Answer: "over-applied by $30,000"

    We know that the Manufacturing Overhead is applied using direct labor cost as the driver. The predetermined application rate using the direct labor cost is calculated:

    Rate = Estimated Overhead/Estimated Driver

    Rate = $600,000 / ($6.00 x 50,000)

    Rate = $600,000/$300,000

    Rate = $2 of overhead is applied for every $1 of direct labor cost

    Since the actual direct labor cost is $325,000, therefore:

    Manufacturing Overhead = $325,000 x $2

    Manufacturing Overhead = $650,000

    Since actual Manufacturing Overhead is only equal to $620,000, this means that it is "over-applied by $30,000"
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