Question

White Company manufactures furniture. Assume the following information: Manufacturing overhead is allocated based on machine hours. Manufacturing overhead is estimated to be $150,000 and machines hours are expected to be 10,000 hours. The actual manufacturing overhead is $31,000 and there are 2,000 actual machine hours. What is White Company’s predetermined overhead allocation rate (to the nearest cent)?

Answer 1

Answer:

overhead rate: 15

applied overhead 30,000

underapplicatio for 1,000

Explanation:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

The manufacturing overhead rate is determinate by dividingthe total expected cost  by a cost driver. In this case, the machine hours.

estimated cost 150,000

expected machine hours 10,000

predeterminate overhead rate = 150,000/10,000 = 15

Next, to allocate cost, we multiply the actual value fo the cost driver by the rate

actual machine hours x MO rate

2,000 x 15 = 30,000 applied overhead.

Last, we compare with the actual overhead to determinate over or underapplied overhead:

applied - actual

30,000  -  31,000  = -1,000

Thew overhead was underapplied, as the cost were for 31,000 but we only recognize 30,000