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16 May, 09:40

Nil Co. uses a predetermine overhead rate based on direct labor cost to apply manufacturing overhead to jobs. For the year ended December 31, Nil's estimated manufacturing overhead was $600,000, based on an estimated volume of 50,000 direct labor hours, at a direct labor rate of $6.00 per hour. Actual manufacturing overhead amounted to $620,000 with actual direct labor cost of $325,000 & 60,000 in actual direct labor hours. For the year, manufacturing overhead was:A) underapplied by $20,000. B) underapplied by $22,000. C) overapplied by $30,000. D) underapplied by $30,000.

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  1. 16 May, 11:24
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    The correct answer is C: overapplied by $30.000

    Explanation:

    Giving the following information:

    For the year ended December 31:

    Estimated manufacturing overhead was $600,000,

    Estimated volume of 50,000 direct labor hours.

    Direct labor rate of $6.00 per hour.

    Actual manufacturing overhead amounted to $620,000

    Actual direct labor cost of $325,000

    Direct labor hours = 60,000

    Estimated overhead rate = 600000 / (50000h*$6) = 2

    Allocated overhead = overhead rate * direct labor cost = 2*325000 = $650000

    Actual overhead - allocated overhead = 620000 - 650000 = 30000 (overapplied).

    It is overapplied because the actual cost was under the estimated.
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