Wert Corporation uses a predetermined overhead rate based on direct labor cost to apply manfacturing overhead to jobs. Last year, the company's estimated manufacturing was $1,200,000 and its estimated level of activity was 50,000 direct labor-hours. The company's direct labor wage rate is $12 per hour. Actual manufacturing overhead amounted to $1,240,000, with actual direct labor cost of $650,000. For the year, manufacturing overhead was(A) over-applied by $60,000(B) under-applied by $60,000(C) over-applied by $40,000(D) under-applied by $44,000

(A) over-applied by $60,000

Explanation:

For computing the ended overhead amount, first, we have to compute the predetermined overhead rate. The formula is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated level of activity)

= $1,200,000 ÷ 50,000 direct labor hours

= $24

Now we have to find the applied overhead which equal to

= Actual direct labor-hours × predetermined overhead rate

= $650,000 ÷ 12 per hour × $24

= $1,300,000

So, the ending overhead equals to

= Actual manufacturing overhead - applied overhead

= $1,240,000 - $1,300,000

= $60,000 over-applied

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