Question

Bitz Company uses a predetermined overhead rate based on direct labor hours to alocate manufacturing overhead to jobs. During the year, the company actually incurred manufacturing overhead costs of $582,900 and 135,100 direct labor hours were worked. The company estimated that it would incur $525,600 of manufacturing overhead during the year and that 150,300 direct labor hours would be worked. By how much was manufacturing overhead overallocated or underallocated for the year? (Round intermediary calculations to the nearest cent.) O $57,300 overallocated O $110,050 underallocated O $110,050 overallocated $57,300 undererallocated

Answer 1

The correct answer is "$110,050 Under-allocated".

Supporting explanations:

Predetermined overhead rate = Total estimated manufacturing overheads / Total estimated direct labor hours

= $525,600 / 150,300 direct labor hours

= $3.50 per direct labor hour

Allocated manufacturing overheads = Actual direct labor hours worked * Predetermined overhead rate per direct labor hour

= 135,100 direct labor hours * $3.50 per direct labor hour

= $472,850

When actual overheads of $582,900 is more than the allocated manufacturing overheads, it is called under-applied overheads because the allocated overheads are less allocated compared with actual overheads incurred. Therefore, the difference of $110,050 ($582,900 - $472,850) is called the under-allocated overheads.

Therefore, the correct answer is $110,050 under-allocated.