Molzahn Corporation is a manufacturer that uses joborder cos

Molzahn Corporation is a manufacturer that uses job-order costing. The company closes out any overapplied or underapplied overhead to Cost of Goods Sold at the end of the year. The company has supplied the following data for the just completed year: Estimated total manufacturing overhead at the beginning of the year Estimated direct labor-hours at the beginning of the year(direct labor hours) $481,250 35,000 Results of operations: Actual direct labor-hours (direct labor hours) Manufacturing overhead: ndirect labor cost Other manufacturing overhead costs incurred Manufacturing overhead is overapplied or underapplied by: 40,000 $179,000 $465,000 A. $165,000 Overapplied OB. $94,000 Overapplied C. $94,000 Underapplied D. $165,000 Underapplied

Solution

Predetermined Manufacturing OH rate = 481250 / 35000 = $ 13.75 per DLH

Actual Manufacturing OH incurred = 179000 + 465000 = $ 644000

Applied Manufacturing OH = 40000 * $ 13.75 per DLH = $ 550000

So, Manufacturing OH was underapplied by ( 644000 - 550000 ) $ 94000.

Option C is correct.