Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. Last year, the company worked 30,000 actual direct labor hours and incurred $348,000 in actual manufacturing overhead costs, while it had estimated 29,000 labor hours and $319,000 in overhead costs. Based on the actual versus estimated figures, the company's manufacturing overhead for the year was underapplied by $18,000.

1. Sawyer Manufacturing Corporation uses a predetermined overhead rate based on direct labor-
hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 30,000 actual
direct labor-hours and incurred $348,000 of actual manufacturing overhead cost. The
Corporation had estimated that it would work 29,000 direct labor-hours during the year and incur
$319,000 of manufacturing overhead cost. The Corporation's manufacturing overhead cost for
the year was:
overapplied by $18,000
overapplied by $11,000
underapplied by $18,000
underapplied by $11,000
Solution
Estimated Manufacturing overhead $319,000
Estimated Labor hours $29,000
Predetermined overhead rate $11 per labor hour
Actual Labor hours 30,000
Overhead applied ($11 x 30,000) $330,000
Actual Overhead incurred $348,000
Overhead under-applied $18,000 ($348,000 - $330,000)
Hence correct option is – Under-applied $18,000