Question

Normal annual capacity for star company is 36,000 machine hours, with fixed factory overhead budgeted as Rs. 16,920 and an estimated variable factory overhead rate of Rs. 2.10 per hour, During October actual production required 2,700 machine hours, with a total factory overhead of Rs. 7,400. Required: Compute: 1) The applied factory overhead 2) The over-or underapplied factory overhead amount for October,

Answer 1

The applied factory overhead is $6,939 and  the over-or underapplied factory overhead amount for October is $461.

Applied and under applied factory overhead

1. Applied factory overhead:

Predetermine overhead rate=Fixed overhead/Machine hours

Predetermine overhead rate=16,920/36,000

Predetermine overhead rate=0.47

Applied overhead=Machine hours×Rate

Variable=2700×2.10 per hour= $5,670

Fixed=2700×0.47 per hour=$1,269

Total overhead applied=$6,939

($5,670+$1,269)

2. Under applied overhead

Total overhead applied $6,939

Less Total factory overhead   $7,400

Under applied overhead -$461
($6,939-$7,400)

Therefore the applied factory overhead is $6,939 and  the over-or underapplied factory overhead amount for October is $461.

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