Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 57,000 actual direct labor-hours and incurred $345,000 of actual manufacturing overhead cost. The Corporation had estimated that it would work 55,000 direct labor-hours during the year and incur $330,000 of manufacturing overhead cost. The Corporation's manufacturing overhead cost for the year was:

a. overapplied by $15,000
b. underapplied by $15,000
c. overapplied by $3,000
d. underapplied by $3,000

d. underapplied by $ 3,000

Explanation:

Computation of predetermined overhead rate based on direct labor hours

Estimated Overhead Cost                                      $      330,000

Estimated Direct Labor Costs                                          55,000 hours

Predetermined Overhead rate ( $ 330,000/ 55,000)  $ 6 per labor hour  

Total applied overhead   =   Actual Direct Labor hours times Overhead rate

57,000 hours * $ 6 per hour                                  $ 342,000

Actual manufacturing overhead                            $ 345,000

Under applied overhead                                        $(    3,000)