Question 5: (3 Points)

Messrs. Elie Manufacturing Company uses a job order costing system to collect the costs of its interior decorating business. Each client's consultation is treated as a separate job. Overhead is applied to each job based on the number of labor hours incurred.

Listed below are data for the current year.

Budgeted overhead: AED 1,428,000

Actual overhead: AED 1,479,000

Budgeted labor hours: 68,000

Actual labor hours: 69,700

The company uses Operating Overhead in place of Manufacturing Overhead.

Required:

a) Compute the predetermined overhead rate.

b) Determine whether the overhead was underapplied - or overapplied and by how much?

c) What is the effect of your answer on Messrs. Elie Manufacturing Companys income for the period?