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13 November, 10:28

Wert Corporation uses a predetermined overhead rate based on direct labor cost to apply manfacturing overhead to jobs. Last year, the company's estimated manufacturing was $1,200,000 and its estimated level of activity was 50,000 direct labor-hours. The company's direct labor wage rate is $12 per hour. Actual manufacturing overhead amounted to $1,240,000, with actual direct labor cost of $650,000. For the year, manufacturing overhead was (A) over-applied by $60,000 (B) under-applied by $60,000 (C) over-applied by $40,000 (D) under-applied by $44,000

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  1. 13 November, 11:14
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    (A) over-applied by $60,000

    Explanation:

    For computing the ended overhead amount, first, we have to compute the predetermined overhead rate. The formula is shown below:

    Predetermined overhead rate = (Total estimated manufacturing overhead) : (estimated level of activity)

    = $1,200,000 : 50,000 direct labor hours

    = $24

    Now we have to find the applied overhead which equal to

    = Actual direct labor-hours * predetermined overhead rate

    = $650,000 : 12 per hour * $24

    = $1,300,000

    So, the ending overhead equals to

    = Actual manufacturing overhead - applied overhead

    = $1,240,000 - $1,300,000

    = $60,000 over-applied
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