Cedar Company estimates its manufacturing overhead to be $700,000 and its direct

Question

Cedar Company estimates its manufacturing overhead to be $700,000 and its direct labor costs to be $560,000 for Year 2. Cedar worked on the following three jobs for the year:


Job


Status


Direct Labor Costs

Job 2-1


Completed and sold


$195,000

Job 2-2


Completed by not sold


325,000

Job 2-3


In progress


130,000


Actual manufacturing overhead for Year 2 was $822,000. Manufacturing overhead is applied on the basis of direct labor costs. How much of the underapplied overhead should be allocated to finished goods?
$2,850
$1,900
$4,750
$9,500

Explanation / Answer

estimated cost =700000 labour costs =560000 total cost of goods =195000+325000+130000 =650000 estimated in come =700000-650000 =150000 actual cost incurred =822000 so the under applied overhead =195/650 =0.3 *X = 2850

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