Freeman Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $150,000 and direct labor-hours would be 10,000. The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labor-hours. The cost records for the year will show:
A) overapplied overhead of $30,000
B) underapplied overhead of $30,000
C) underapplied overhead of $6,000
D) overapplied overhead of $6,000

Question

Quizplus · Accepted Answer

The predetermined overhead rate is $150,000 / 10,000 hours = $15 per hour. Applied overhead is 12,000 hours x $15 = $180,000. Actual overhead is $186,000, so underapplied overhead is $186,000 - $180,000 = $6,000.

Freeman Company Uses a Predetermined Overhead Rate Based on Direct