Sai Company Uses a Job Order Cost System and Applies

question 21

Multiple Choice

Sai Company uses a job order cost system and applies manufacturing overhead costs to jobs using a predetermined overhead rate based on direct labour-hours. The following data were extracted from the company's accounting records for Year 6
$\begin{array}{|l|r|r|}\hline & \text { Estimated } & \text { Actual } \\\hline \begin{array}{l}\text { Manufacturing overhead } \\\text { costs }\end{array} & \$ 50,000 & \$ 54,000 \\\hline \text { Direct labour hours } & 20,000 \text { hours } & 24,000 \text { hours } \\\hline\end{array}$
Job \#461 was completed during the year and the following costs had been incurred on that job:
$\begin{array}{|l|r|}\hline \text { Direct materials: } & \$ 4,000 \\\hline \text { Direct labour: } & \$ 1,500 \text { (at } \$ 5.00 \text { per direct labour hour) } \\\hline\end{array}$

-How much of any underapplied or overapplied overhead would have been due to the fact that the estimated overhead costs were different from the actual?

• A) $4,000.
• B) $6,000.
• C) $10,000.
• D) $14,000.

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Definitions:

Economic Life

The estimated period over which an asset is expected to be productive or useful in generating revenue.

Patent Rights

Legal protections granted to inventors or assignees, giving them exclusive rights to use and commercialize their inventions for a certain period.

Double-Declining-Balance

A method of accelerated depreciation where an asset loses value at double the rate of its straight-line depreciation.

Units-Of-Activity

A method for allocating depreciation based on the actual usage, work, or units of production of the asset, rather than passage of time.