Fortune Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. On October 1, the estimates for the month were: Manufacturing overhead $ 20,550 Direct labor-hours 13,700 During October, the actual results were: Manufacturing overhead $ 29,500 Direct labor-hours 16,000 The cost records for October will show:

$5,500

Explanation:

The computation of cost records for October is shown below:-

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base

= $20,550 ÷ 13,700

= $1.5

Estimated Manufacturing Overhead for Actual Direct Labor Hours = Actual Labor Hours × Predetermined Overhead Rate per hour

= 16,000 × $1.5

= $24,000

Manufacturing Overheads are Under Applied = Manufacturing overhead during October - Estimated Manufacturing Overhead for Actual Direct Labor Hours

= $29,500 - $24,000

= $5,500

So, for computing the cost records for October we simply applied the above formula.

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