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 which of the following?
A) Overapplied overhead of $30,000.
B) Underapplied overhead of $30,000.
C) Underapplied overhead of $6,000.
D) Overapplied overhead of $6,000.Applied = 12,000 hours @ $15/hr = $180,000

Question

Quizplus · Accepted Answer

The predetermined overhead rate is $15 per direct labour hour ($150,000 / 10,000 hours). Applied overhead is $180,000 (12,000 hours x $15). Actual overhead is $186,000. The difference is $6,000 underapplied ($186,000 - $180,000).

Freeman Company Uses a Predetermined Overhead Rate Based on Direct