Tiffany charges manufacturing overhead to products by using a predetermined appl

Question

Tiffany charges manufacturing overhead to products by using a predetermined application rate, computed on the basis of labor hours. The following data pertain to the current year: Budgeted manufacturing overhead: $ 3,900,000

Actual manufacturing overhead: $ 3,917,000

Budgeted labor hours: 130,000

Actual labor hours: 132,300

Which of the following choices is the correct status of manufacturing overhead at year-end? Overapplied by $17,000. Underapplied by $17,000. Overapplied by $52,000. Underapplied by $52,000. Overapplied by $69,000.

Explanation / Answer

Recovery rate per hour:

= $3,900,000/130,000

= $30 per hour.

Applied overheads:

= $30×132,300

= $3,969,000

Overheads over applied:

= Applied overheads – Actual overheads

= $3,969,000-$3,917,000

= $52,000 over applied

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