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:
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 $150,000 / 10,000 hours = $15 per hour. Applied overhead is 12,000 hours x $15 = $180,000. Actual overhead is $186,000, so overhead is underapplied by $6,000 ($186,000 - $180,000).

Freeman Company Uses a Predetermined Overhead Rate Based on Direct