Baka Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $244,800 and 9,800 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $245,400 and actual direct labor-hours were 6,300.

The overhead for the year was: (Round your intermediate calculations to 2 decimal places.)

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Multiple Choice

$87,900 underapplied

$87,300 overapplied

$87,300 underapplied

$87,900 overapplied

The correct answer is A.

Explanation:

Giving the following information:

The company based its predetermined overhead rate on the total estimated overhead of $244,800 and 9,800 estimated direct labor-hours.

The actual direct labor-hours were 6,300.

Actual manufacturing overhead for the year amounted to $245,400

First, we need to calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 244,800/9,800= $25 per direct labor hour.

Now, we can allocate overhead based on actual direct labor hour:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 25*6,300= $157,500

Over/under allocation= real MOH - allocated MOH

Over/under allocation=245,400 - 157,500= $87,900 underallocated

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