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:
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. $90,000 - (25,000 @ $3.50)= $2,500 underapplieD.

Question

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: 
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. $90,000 - (25,000 @ $3.50)= $2,500 underapplieD.

Quizplus · Accepted Answer

The actual overhead cost incurred during the year was $90,000, while the overhead that should have been applied according to the predetermined rate was $87,500 ($3.50 x 25,000 direct labor hours). Therefore, there was an underapplied overhead of $2,500 ($87,500 - $90,000).

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