Sawyer manufacturing corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. last year, the corporation worked 44,000 actual direct labor-hours and incurred $546,000 of actual manufacturing overhead cost. the corporation had estimated that it would work 42,000 direct labor-hours during the year and incur $504,000 of manufacturing overhead cost. the corporation's manufacturing overhead cost for the year was:

a. overapplied by $18,000
b. underapplied by $24,000
c. overapplied by $24,000
d. underapplied by $18,000

Overhead application rate

= Budgeted overhead

  Budgeted activity level

= $504,000

  42,000 hours

= $12 per direct labour hour

Overhead applied

= Overhead application rate x Actual direct labour hours

= $12 x 44,000 hours

= $528,000

Under applied overhead

= Overhead applied - Actual overhead incurred

= $528,000 - $546,000

= $18,000

The correct answer is A

Explanation:

In this case, there is need to calculate the overhead application rate, which is budgeted overhead divided by budgeted direct labour hours. Then, we will calculate the overhead applied, which equals overhead application rate multiplied by actual direct labour hours.

Finally, under-applied overhead is calculated as overhead applied minus actual overhead incurred.

answer; capital structure decision;