Freeman Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $150,000 and direct labor-hours would be 10,000. The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labor-hours. The cost records for the year will show:
a. overapplied overhead of $30,000.
b. underapplied overhead of $30,000.
Selected: c. underapplied overhead of $6,000. This answer is correct.
d. overapplied overhead of $6,000.
Correct! Predetermined overhead rate = 150,000 / 10,000 = 15 per direct labor hour. Applied manufacturing overhead = 15 x 12,000 = 180,000. 186,000 actual – 180,000 applied = 6,000 underapplied.