Sullivan Company Uses a Predetermined Overhead Rate Based on Direct

question 106

Multiple Choice

Sullivan Company uses a predetermined overhead rate based on direct labor hours to allocate manufacturing overhead to jobs.The company estimated that it would incur $500,000 of manufacturing overhead during the year and that 100,000 direct labor hours would be worked.During the year,the company actually incurred manufacturing overhead costs of $590,000 and 120,000 direct labor hours were worked. By how much was manufacturing overhead overallocated or underallocated for the year?

• A)$10,000 underallocated
• B)$10,000 overallocated
• C)$90,000 underallocated
• D)$90,000 overallocated

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Definitions:

Formulas

Prescribed sets of instructions or rules expressed in mathematical symbols and operations designed to solve problems or calculate values.

Vendor Managed Inventory (VMI)

A supply chain initiative where the supplier assumes the responsibility of managing inventory levels for the customer.

Outsourcing

The business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company's own employees and staff.

Holding Cost Rate

The percentage of the value of inventory held over a certain period of time as costs, including storage, insurance, and depreciation.