11 June, 11:20

# Clear Colors Corporation uses a predetermined overhead rate based on direct labor costs to apply manufacturing overhead to jobs. At the beginning of the year the Corporation estimated its total manufacturing overhead cost at \$350,000 and its direct labor costs at \$200,000. The actual overhead cost incurred during the year was \$362,000 and the actual direct labor costs incurred on jobs during the year was \$208,000. The manufacturing overhead for the year would be:a. \$12,000 underappliedb. \$2,000 overappliedc. \$12,000 overappliedd. \$2,000 underapplied

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1. 11 June, 12:05
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b. \$ 2,000 overapplied

Explanation:

Firstly, we need to determine the predetermined overhead rate based on direct labor costs.

Estimated total manufacturing Overhead \$ 350,000

Estimated direct labour costs \$ 200,000

Predetermined overhead rate \$ 350,000 / \$ 200,000 \$ 1.75 per \$ of direct labour costs.

The total manufacturing overhead applied on direct labor costs of \$ 208,000, is:

\$ 208,000 * \$ 1.75 \$ 364,000

Actual overhead costs incurred \$ 362,000

Manufacturing overhead over applied \$ 2,000