Killian Corporation began operations on January 1. The predetermined overhead rate was set at $6.00 per direct labor-hour. Debits to Work in Process for the year totaled $550,000. Credits to Work in Process totaled $480,000. Analysis of the Corporation's records indicate that direct labor cost totaled $250,000 for the year, which represents 20,000 direct labor-hours. If the actual manufacturing overhead cost for the year totaled $145,000, then overhead was:
A)overapplied by $25,000
B)overapplied by $10,000
C)underapplied by $25,000
D)underapplied by $10,000

Question

Quizplus · Accepted Answer

The predetermined overhead rate is $6.00 per direct labor-hour. Therefore, the total amount of overhead applied to production for the year can be calculated as follows:

$6.00 per direct labor-hour x 20,000 direct labor-hours = $120,000

This means that Killian Corporation applied $120,000 of overhead to production during the year. However, the actual manufacturing overhead cost for the year was $145,000.

To determine whether overhead was overapplied or underapplied, we need to compare the amount of overhead applied to the amount of overhead that was actually incurred:

Actual manufacturing overhead cost - Applied manufacturing overhead = Underapplied or overapplied overhead

$145,000 - $120,000 = $25,000 underapplied overhead

Therefore, the answer is C) underapplied by $25,000.

Killian Corporation Began Operations on January 1