ABC Company uses a predetermined overhead rate of $10 per direct labor hour. Actual manufacturing overhead incurred during October amounted to $35,000 when ABC worked 3,200 direct labor hours. At the end of October, the Manufacturing overhead account has a balance of $ that is (underapplied/overapplied).
Question
ABC Company uses a predetermined overhead rate of 35,000 when ABC worked 3,200 direct labor hours. At the end of October, the Manufacturing overhead account has a balance of $ that is (underapplied/overapplied).
Solution
Step 1: Calculate the applied overhead The predetermined overhead rate is 10 * 3,200 = $32,000.
Step 2: Compare the applied overhead with the actual overhead The actual manufacturing overhead incurred during October is 32,000.
Step 3: Determine if the overhead is underapplied or overapplied Since the actual overhead is greater than the applied overhead, the overhead is underapplied.
Step 4: Calculate the balance of the Manufacturing overhead account The balance of the Manufacturing overhead account is the difference between the actual overhead and the applied overhead. Therefore, the balance is 32,000 = $3,000.
So, at the end of October, the Manufacturing overhead account has a balance of $3,000 that is underapplied.
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