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Ruel Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $77,250 and 2,500 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $79,000 and actual direct labor-hours were 2,400.The overhead for the year was:A. $3,090 overappliedB. $4,840 underappliedC. $4,840 overappliedD. $3,090 underapplied

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Answer:

The answer is: B) $4,840 underapplied

Explanation:

First we calculate the estimated cost per direct labor hour:

$77,250 / 2,500 = $30.90 per direct labor hour

If only 2,400 direct labor hours were employed, then the estimated cost for total labor hours should have been $74,160 (= $30.90 x 2,400), but instead the total cost was $79,000 which is $4,840 underapplied. The actual cost per direct labor hour is $32.92 (= $79,000 / 2,400).

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