Nil Co. uses a predetermine overhead rate based on direct labor cost to apply manufacturing overhead to jobs. For the year ended December 31, Nil's estimated manufacturing overhead was $600,000, based on an estimated volume of 50,000 direct labor hours, at a direct labor rate of $6.00 per hour. Actual manufacturing overhead amounted to $620,000 with actual direct labor cost of $325,000 & 60,000 in actual direct labor hours. For the year, manufacturing overhead was:A) underapplied by $20,000. B) underapplied by $22,000. C) overapplied by $30,000. D) underapplied by $30,000.

Question

Alessandro Stephens

Business

11 March, 09:06

Nil Co. uses a predetermine overhead rate based on direct labor cost to apply manufacturing overhead to jobs. For the year ended December 31, Nil's estimated manufacturing overhead was $600,000, based on an estimated volume of 50,000 direct labor hours, at a direct labor rate of $6.00 per hour. Actual manufacturing overhead amounted to $620,000 with actual direct labor cost of $325,000 & 60,000 in actual direct labor hours. For the year, manufacturing overhead was:A) underapplied by $20,000. B) underapplied by $22,000. C) overapplied by $30,000. D) underapplied by $30,000.

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Answers (1)

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Wolf · Answer 1

The correct answer is C: overapplied by $30.000

Explanation:

Giving the following information:

For the year ended December 31:

Estimated manufacturing overhead was $600,000,

Estimated volume of 50,000 direct labor hours.

Direct labor rate of $6.00 per hour.

Actual manufacturing overhead amounted to $620,000

Actual direct labor cost of $325,000

Direct labor hours = 60,000

Estimated overhead rate = 600000 / (50000h*$6) = 2

Allocated overhead = overhead rate * direct labor cost = 2*325000 = $650000

Actual overhead - allocated overhead = 620000 - 650000 = 30000 (overapplied).

It is overapplied because the actual cost was under the estimated.