Asked by amber carrillo on Jul 12, 2024
Verified
Crich Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 22,180 hours and the total estimated manufacturing overhead was $589,988. At the end of the year, actual direct labor-hours for the year were 22,150 hours and the actual manufacturing overhead for the year was $589,988. Overhead at the end of the year was: (Do not round intermediate calculations.)
A) $848 overapplied
B) $848 underapplied
C) $798 underapplied
D) $798 overapplied
Direct Labor-Hours
Cumulative hours employees commit to the process of manufacturing.
Underapplied Overhead
A scenario where the estimated overhead costs allocated are less than the actual overhead costs incurred during production.
- Integrate understanding of manufacturing overhead application and modification in cost computations.
- Learn to assess and compute the assignment of costs when manufacturing overhead is underapplied or overapplied.
Verified Answer
AT
Areeb ThassimJul 16, 2024
Final Answer :
C
Explanation :
The predetermined overhead rate can be calculated as follows:
Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated direct labor-hours
Predetermined overhead rate = $589,988 / 22,180 = $26.60 per direct labor-hour
To calculate the overhead applied for the year, we multiply the actual direct labor-hours by the predetermined overhead rate:
Overhead applied = Actual direct labor-hours x Predetermined overhead rate
Overhead applied = 22,150 x $26.60 = $588,290
Since actual manufacturing overhead for the year was $589,988 and overhead applied was $588,290, there was an underapplied overhead of $1,698 ($589,988 - $588,290).
However, we are asked to calculate the overhead at the end of the year, which means we need to adjust for any over- or underapplied overhead. In this case, since the underapplied overhead is a debit balance, we add it to the actual manufacturing overhead to obtain the adjusted overhead at the end of the year:
Adjusted overhead = Actual manufacturing overhead + Underapplied overhead
Adjusted overhead = $589,988 + $1,698 = $591,686
Next, we compare the adjusted overhead to the total estimated manufacturing overhead to determine whether overhead was overapplied or underapplied for the year:
Total estimated manufacturing overhead = $589,988
If adjusted overhead is greater than total estimated overhead, overhead is overapplied. If adjusted overhead is less than total estimated overhead, overhead is underapplied.
In this case, since adjusted overhead is less than total estimated overhead, overhead is underapplied. The amount of underapplied overhead is $798 ($589,988 - $591,686). Therefore, the answer is C, $798 underapplied.
Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated direct labor-hours
Predetermined overhead rate = $589,988 / 22,180 = $26.60 per direct labor-hour
To calculate the overhead applied for the year, we multiply the actual direct labor-hours by the predetermined overhead rate:
Overhead applied = Actual direct labor-hours x Predetermined overhead rate
Overhead applied = 22,150 x $26.60 = $588,290
Since actual manufacturing overhead for the year was $589,988 and overhead applied was $588,290, there was an underapplied overhead of $1,698 ($589,988 - $588,290).
However, we are asked to calculate the overhead at the end of the year, which means we need to adjust for any over- or underapplied overhead. In this case, since the underapplied overhead is a debit balance, we add it to the actual manufacturing overhead to obtain the adjusted overhead at the end of the year:
Adjusted overhead = Actual manufacturing overhead + Underapplied overhead
Adjusted overhead = $589,988 + $1,698 = $591,686
Next, we compare the adjusted overhead to the total estimated manufacturing overhead to determine whether overhead was overapplied or underapplied for the year:
Total estimated manufacturing overhead = $589,988
If adjusted overhead is greater than total estimated overhead, overhead is overapplied. If adjusted overhead is less than total estimated overhead, overhead is underapplied.
In this case, since adjusted overhead is less than total estimated overhead, overhead is underapplied. The amount of underapplied overhead is $798 ($589,988 - $591,686). Therefore, the answer is C, $798 underapplied.
Learning Objectives
- Integrate understanding of manufacturing overhead application and modification in cost computations.
- Learn to assess and compute the assignment of costs when manufacturing overhead is underapplied or overapplied.
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