The following accounts are from last year's books at Sharp Manufacturing: Sharp uses job-order costing and applies manufacturing overhead to jobs based on direct labor costs. What is the manufacturing overhead overapplied or underapplied for the year?
A) $6,000 underapplied
B) $6,000 overapplied
C) $26,000 underapplied
D) $26,000 overapplied

Question

The following accounts are from last year's books at Sharp Manufacturing:      Sharp uses job-order costing and applies manufacturing overhead to jobs based on direct labor costs. What is the manufacturing overhead overapplied or underapplied for the year?
A) $6,000 underapplied 
B) $6,000 overapplied 
C) $26,000 underapplied 
D) $26,000 overapplied

Quizplus · Accepted Answer

Since the question asks for manufacturing overhead overapplied or underapplied, we just need to compare actual MOH with applied MOH. There is no information given about actual MOH, so we need to calculate applied MOH by multiplying the predetermined overhead rate with actual DL cost. The predetermined overhead rate can be calculated as follows:
Predetermined overhead rate = Estimated total manufacturing overhead / Estimated total direct labor cost
= $690,000 / $460,000
= $1.50 per DL dollar
Now let's calculate applied MOH:
Job 11eb6b8f_61f4_cae4_bf83_b55d26bd99a5_TB8314_00: DL cost = $10,000, MOH applied = 1.5 x 10,000 = $15,000
Job 11eb6b8f_61f4_cae5_bf83_1b9fd46193e4_TB8314_00: DL cost = $20,000, MOH applied = 1.5 x 20,000 = $30,000
Job 11eb6b8f_61f4_cae6_bf83_1f36962f6271_TB8314_00: DL cost = $30,000, MOH applied = 1.5 x 30,000 = $45,000
Job 11eb6b8f_61f4_f1f7_bf83_a794810909d8_TB8314_00: DL cost = $15,000, MOH applied = 1.5 x 15,000 = $22,500
Job 11eb6b8f_61f4_f1f8_bf83_89b7667c75a6_TB8314_00: DL cost = $25,000, MOH applied = 1.5 x 25,000 = $37,500
Total DL cost = $100,000, Total MOH applied = $150,000
Therefore, MOH overapplied by $6,000 ($150,000 - $144,000) which means that manufacturing overhead was applied more than the actual MOH.

The Following Accounts Are from Last Year's Books at Sharp