Harrell 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 its total manufacturing overhead cost at $400,000 and its direct labour-hours at 100,000 hours.The actual overhead cost incurred during the year was $350,000 and the actual direct labour hours incurred on jobs during the year was 90,000 hours.The manufacturing overhead for the year would be?
A) $10,000 underapplied.
B) $10,000 overapplied.
C) $50,000 underapplied.
D) $50,000 overapplied.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated as follows:

Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total direct labour hours
Predetermined overhead rate = $400,000 / 100,000 hours
Predetermined overhead rate = $4 per direct labour hour

The manufacturing overhead applied to jobs during the year is calculated as follows:

Manufacturing overhead applied = Predetermined overhead rate x Actual direct labour hours
Manufacturing overhead applied = $4 x 90,000 hours
Manufacturing overhead applied = $360,000

Therefore, the manufacturing overhead is overapplied by:

Overapplied manufacturing overhead = Actual manufacturing overhead cost incurred - Manufacturing overhead applied
Overapplied manufacturing overhead = $350,000 - $360,000
Overapplied manufacturing overhead = $10,000

This means that the company applied too much overhead to its jobs during the year, resulting in an overapplied amount of $10,000. The answer is B, $10,000 overapplied.

Harrell Company Uses a Predetermined Overhead Rate Based on Direct