Refer to the module problem. When the OH application base is direct labour dollars, OH is over-applied by $168,234. What does this mean? (Ok, this is a bit of a trick question, so answer it carefully).

o B D E E F G H 1 K L M N o P 1 Estimates Actuals 2 Direct labour hours 41.000 43,480 3 Machine hours 207,000 196,600 4 5 Direct labour $732,000 $792,310 6 6 Direct materials 863,000 858,200 7 Overhead 2,457,000 2,491,200 8 . 9 Note: POH Rate's have been rounded to two decimals for ease of viewing. This will result in a higher number for the yearly overhead estimate as a restult when multiplied by the yearly estimated total for the cost 10 driver. For accurate calculations the POHRate should be used in calculations to the decimal 11 12 Cost Driver: Machine Hours : 13 POHRates $ 11.87 14 ($2,457,000/207,000 DLH) 15 16 Job 403 17 Job Cost 18 Direct Manufacturing Costs: 19 Direct Materials $ 7,800.00 20 Direct Labour $ 21,210.00 21 Applied Overhead $ 11,395.20 22 960 DLH $11.87 23 Total Cost $ 40,405.20 24 25 Job 890 26 Job Cost 27 Direct Manufacturing Costs: 28 Direct Materials $ 7,400.00 29 23 Direct Labour $ 28,500.00 30 Applied Overhead $ 14,837.50 31 1,250 DLH * $11.87 32 Total Cost 34 $ 50,737.50 33 24 34 Total Cost of Jobs $ 91,142.70 35 Total Applied Overhead $ 26,232.70 26 36 27 37 Question 4 38 Difference in Applied Overhead= $ 106,212.60 39 Therefore, overhead applied under direct labour hours as the cost driver was $106,212.60 higher than that of overhead when using machine hours as the cost driver. 40 41 If we subtract this difference from the total estimate, we would receive a new estimated overhead, which uses the machine hours pre-determined overhead rate of $11.87 per machine hour. 42 43 New Estimated Overhead 44 $2,457,000 - $106.212.60 $2,350,787.40 45 46 Therefore.actual overhead ($2-51,200) > estimated overhead ($2,350,787.40), causing a greater underapplication of overhead by $140,412.60. 47 48 A0