Fortune Company Uses a Predetermined Overhead Rate Based on Direct

question 113

Multiple Choice

Fortune Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs.
$\begin{array}{lrr}\text { On October } 1 \text {, the estimates for the month were: }\\ \text { Manufacturing overhead } &\$17,000\\ \text {Direct labor-hours } &13,600\\ \text {During October; the actual results were: } &\\ \text { Manufacturing overhead } &\$18,500\\ \text {Direct labor-hours } &12,000\\\end{array}$

The cost records for October will show:

• A) Overapplied overhead of $1,500.
• B) Underapplied overhead of $1,500.
• C) Overapplied overhead of $3,500.
• D) Underapplied overhead of $3,500.

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Definitions:

Total Costs

The total expense of manufacturing that encompasses all constant and fluctuating costs.

Average Variable Cost

The cost of labor and materials divided by the quantity of output, representing the variable cost per unit of production.

Total Variable Cost

The sum of all costs that vary with output level, including costs such as labor and raw materials.

Average Total Cost

The total cost of production (fixed and variable costs combined) divided by the total quantity of output produced.