Yole Corporation uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs. At the beginning of the year, Yole estimated manufacturing overhead would be $100,000 and direct labour hours would be 50,000. The actual figures for the year were $120,000 for manufacturing overhead and 52,000 direct labour hours. The cost records for the year will show which of the following?
A)$2,000 for overhead underapplied.
B)$16,000 for overhead overapplied.
C)$16,000 for overhead underapplied.
D)$20,000 for overhead underapplied.
E)$20,000 for overhead overapplied.

Question

Quizplus · Accepted Answer

To determine the overhead applied for the year, we need to calculate the predetermined overhead rate:

Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct labour hours
= $100,000 / 50,000
= $2.00 per direct labour hour

Using the predetermined overhead rate, we can calculate the overhead applied for the year:

Overhead applied = Predetermined overhead rate x Actual direct labour hours
= $2.00 x 52,000
= $104,000

To determine whether overhead was overapplied or underapplied, we need to compare the overhead applied to the actual manufacturing overhead:

Overhead variance = Actual manufacturing overhead - Overhead applied
= $120,000 - $104,000
= $16,000 underapplied

Therefore, the cost records will show $16,000 for overhead underapplied. The answer is C.

Yole Corporation Uses a Predetermined Overhead Rate Based on Direct