3-3B – Predetermined Overhead Rate, Overapplied and Underapplied Overhead
Jake’s Autobody is a car repair shop. The company uses direct labour cost as a basis for applying
manufacturing overhead costs to jobs. The company estimates its annual overhead to be $140,000
and it expects employees to work 20,000 hours at an average wage rate of $12 per hour. During
the year, employees actually worked 18,000 hours (at a wage rate of $12.25 per hour) and the
actual amount spent on overhead was $150,000.
Required:
a.) Compute the predetermined overhead rate.
b.) How much overhead would be applied to jobs during the year?
c.) By how much was overhead overapplied or underapplied for the year?