Sawyer Manufacturing Corporation uses a predetermined overhead rate based on dir
ID: 2430945 • Letter: S
Question
Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 41,000 actual direct labor-hours and incurred $624,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 39,000 direct labor-hours during the year and incur $585,000 of manufacturing overhead cost. The Corporation's manufacturing overhead cost for the year was:
Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 41,000 actual direct labor-hours and incurred $624,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 39,000 direct labor-hours during the year and incur $585,000 of manufacturing overhead cost. The Corporation's manufacturing overhead cost for the year was:
Explanation / Answer
Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated direct labor-hours
= $585,000 / 39,000 DL hours = $15 per DL hour
Applied manufacturing overhead = Actual DL hours * Predetermined overhead rate
= 41,000 DL hours * $15 per DL hour = $615,000
Actual manufacturing overhead = $624,000 (given)
Underapplied manufacturing overhead = Actual manufacturing overhead - Applied manufacturing overhead
= $624,000 - $615,000 = $9000
Conclusion : Since actual manufacturing overhead cost is more than applied manufacturing overhead cost , thus the Corporation's manufacturing overhead cost for the year was underapplied by $9,000