Parker Corporation has a job-order costing system and uses a predetermined overh
ID: 2508711 • Letter: P
Question
Parker Corporation has a job-order costing system and uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. At the beginning of the year, manufacturing overhead and direct labor-hours for the year were estimated at $50,000 and 25,000 hours, respectively. In June, Job #461 was completed. Materials costs on the job totaled $4,000 and labor costs totaled $1,500 at $5 per hour. At the end of the year it was determined that the company worked 24,000 direct labor-hours for the year and incurred $54,000 in actual manufacturing overhead costs. The manufacturing overhead for the year was:
A. $6,000 overapplied
B. $10,000 overapplied
C. $10,000 underapplied
D. $6,000 underapplied
Explanation / Answer
Predetermined Overhead rate = Budgeted Overhead / Budgeted Direct Labor Hours
= $ 50,000 / 25,000 Hours
= $ 2 per direct labor hour
Actual Overhead = $ 54,000
Overhead Applied = Actual Direct labor hours *Predetermined Overhead rate
= 24,000 Direct labor Hours * $ 2 per direct labor hour
= $ 48,000
Since the Actual Overhead is more than the applied overhead, the overhead is underapplied.
hence the underapplied overhead = $ 54,000 -$ 48,000
= $ 6,000
Hence the correct answer is :
D. $6,000 underapplied