Crich Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 22,160 hours and the total estimated manufacturing overhead was $585,024. At the end of the year, actual direct labor-hours for the year were 22,150 hours and the actual manufacturing overhead for the year was $585,024.

Overhead at the end of the year was:

a.$314 overapplied

b.$314 underapplied

c.$264 underapplied

d.264 overapplied

The correct answer is option (c) $264 underapplied

Explanation:

Given data;

Direct labour hour = 22160

Total Manufacturing overhead cost= $585,024

Actual direct labor hour = 22150

Actual Manufacturing overhead cost = $585024

Calculating the Predetermine overhead rate using the formula;

Predetermined Overhead rate=Total Overhead Cost/Total Direct Labor Hour

Predetermined Overhead rate = $585024/22160

                                                      =$26.4 per labor hour

To determine the under-applied amount of overhead cost, we use the formula;

Under−Applied amount= Estimated Overhead Cost*Actual Overhead Cost

Substituting into the formula, we have

                          (22150*26.4)-585024

      Under applied  = $ 264

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