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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 underapplied

b. $2,000 overapplied

c. $12,000 overapplied

d. $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
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