During the year,Paul Company used a predetermined overhead rate of $3.50 per direct labour hour,based on an estimate of 22,000 direct labour hours to be worked during the year.Actual overhead cost and activity during the year were:
$\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Actual manufacturing overhead cost } \
\text { incurred }
\end{array} & \$ 90,000 \
\hline \text { Actual direct labour hours worked } & 25,000 \
\hline
\end{array}$
What was the under- or overapplied overhead for the year?
A) $2,500 overapplied.
B) $2,500 underapplied.
C) $10,500 overapplied.
D) $13,000 underapplied.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is $3.50 per direct labor hour. The company estimated 22,000 hours but actually worked 25,000 hours. The applied overhead is 25,000 hours * $3.50 = $87,500. The actual overhead cost was $90,000. Therefore, the overhead was underapplied by $90,000 - $87,500 = $2,500.

During the Year,Paul Company Used a Predetermined Overhead Rate of $3.50