Crimp Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 15,000 hours and the total estimated manufacturing overhead was $258,000. At the end of the year, actual direct labor-hours for the year were 13,100 hours and the actual manufacturing overhead for the year was $253,000. Overhead at the end of the year was:
A) $27,680 overapplied
B) $32,680 overapplied
C) $27,680 underapplied
D) $32,680 underapplied

Question

Quizplus · Accepted Answer

The predetermined overhead rate can be calculated as follows:

Predetermined Overhead Rate = Estimated Total Manufacturing Overhead / Estimated Direct Labor-Hours

Predetermined Overhead Rate = $258,000 / 15,000 hours 
Predetermined Overhead Rate = $17.20 per direct labor-hour

Using this predetermined overhead rate, we can calculate the total overhead applied during the year:

Overhead Applied = Predetermined Overhead Rate x Actual Direct Labor-Hours

Overhead Applied = $17.20 x 13,100 hours 
Overhead Applied = $225,320

The difference between the actual manufacturing overhead of $253,000 and the overhead applied of $225,320 is the amount of overhead that was underapplied:

Underapplied Overhead = Actual Manufacturing Overhead - Overhead Applied

Underapplied Overhead = $253,000 - $225,320 
Underapplied Overhead = $27,680

Therefore, the answer is C) $27,680 underapplied.

Crimp Corporation Uses Direct Labor-Hours in Its Predetermined Overhead Rate