Carlo Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.The company estimated manufacturing overhead at $255,000 for the year and direct labour-hours at 100,000 hours.Actual manufacturing overhead costs incurred during the year totalled $270,000.Actual direct labour hours were 105,000.What was the overapplied or underapplied overhead for the year?
A) $2,250 overapplied.
B) $2,250 underapplied.
C) $15,000 overapplied.
D) $15,000 underapplied.

Question

Quizplus · Accepted Answer

To calculate the overhead applied, we use the predetermined overhead rate:
Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct labour hours
= $255,000 / 100,000 hours
= $2.55/hour

The overhead applied to the actual direct labour hours is:
Overhead applied = Predetermined overhead rate x Actual direct labour hours
= $2.55/hour x 105,000 hours
= $267,750

The difference between the actual manufacturing overhead costs incurred and the overhead applied is:
Overhead variance = Actual manufacturing overhead - Overhead applied
= $270,000 - $267,750
= $2,250 underapplied.

Therefore, the answer is B, $2,250 underapplied.

Carlo Company Uses a Predetermined Overhead Rate Based on Direct