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During the year, Paul Company used a predetermined overhead rate of $3
During the year, Paul Company used a predetermined overhead rate of $3.50 per direct labour hour, based on an estimate of 22,000 direct labour hours to be worked during the year. Actual overhead cost and activity during the year were:
Actual manufacturing overhead cost incurred
$90,000
Actual direct labour hours worked
25,000
What was the under- or overapplied overhead for the year?
Expert Solution
Computation of under- or overapplied overhead for the year:
Given,
Predetermined overhead rate = $3.50 per direct labour hour
Actual manufacturing overhead cost = $90,000
Actual direct labor hours worked = 25,000 hours
Applied manufacturing overhead = Actual direct labor hours worked * Predetermined overhead rate
= 25,000 hours * $3.50 per direct labor hour
Applied manufacturing overhead = $87,500
So, Manufacturing overhead is $2,500 underapplied ($90,000 - $87,500) for the year.
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