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.
OH rate = $255,000/100,000 hrs.= $2.55/hr.Actual overhead = $270,000 therefore Underapplied $2,250

Question

Quizplus · Accepted Answer

The actual overhead costs incurred during the year were greater than the estimated overhead costs based on the predetermined overhead rate. This results in underapplied overhead. The underapplied overhead is calculated by subtracting the actual overhead costs from the overhead applied based on the predetermined rate. In this case, the overhead applied based on the predetermined rate is $267,750 (105,000 actual direct labour hours x $2.55 per hour), and the actual overhead costs incurred were $270,000. Therefore, the underapplied overhead is $2,250 ($270,000 - $267,750). Thus, the correct answer is B.

Carlo Company Uses a Predetermined Overhead Rate Based on Direct