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    Manufacturing Overhead

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    Silo's Company uses a predeterminated overhead rate based on labor-hours to apply manufacturing overhead to jobs. Estimate and actual data for direct labor and manufacturing overhead for last year are as follows:

    Estimated Actual
    Direct Labor Hours.............600,000 550,000
    Manufacturing overhead .......$720,000 $680,000

    The manufacturing overhead for Silo's Company for last year was:

    a) underapplied by $40,000
    b) overapplied by $20,000
    c) overapplied by $40,000
    d) underapplied by $20,000

    Calculation are as follows:

    720,000 - 680,000 = $40,000

    I would like to know if $40,000 is overapplied or underapplied and if the calculations above are correct.

    Thanks in advance.

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    Solution Preview

    Based on estimate, overhead rate per $ of labor = 720,000/600,000 = ...