Freeman Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.At the beginning of the year,the company estimated manufacturing overhead would be $150,000 and direct labour hours would be 10,000.The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labour hours.The cost records for the year will show which of the following?
A) Overapplied overhead of $30,000.
B) Underapplied overhead of $30,000.
C) Underapplied overhead of $6,000.
D) Overapplied overhead of $6,000.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as estimated manufacturing overhead divided by estimated direct labor hours, which is $150,000 / 10,000 hours = $15 per direct labor hour. The applied overhead for the year is the predetermined rate multiplied by the actual direct labor hours, which is $15 * 12,000 hours = $180,000. The actual overhead was $186,000, so the difference is $186,000 - $180,000 = $6,000 underapplied overhead.

Freeman Company Uses a Predetermined Overhead Rate Based on Direct