Question

Thomlin Company forecasts that total overhead for the current year will be $15,000,000 with 300,000 total machine hours. Year to date, the actual overhead is $16,000,000, and the actual machine hours are 330,000 hours. If Thomlin Company uses a predetermined overhead rate based on machine hours for applying overhead, as of this point in time (year to date), the overhead is
(A) below $500,000 overapplied
(B) below $1,000,000 overapplied
(C) below $500,000 underapplied
(D) below $1,000,000 underapplied

Answer 1

Answer:

The correct option here is B)

Explanation:

The current year forecast for Thomlin company is  -

Overhead = $15,000,000

Machine hours = 300,000 hours.

From this given information , we can calculate the rate per hour

Rate per hour = overhead / machine hour

= $15,000,000 / 300,000

= $50

Now by multiplying this rate per hour by the actual machine hours -

$50 x 330,000

= $16,500,000 ( applied overhead )

so therefore applied overhead - actual overhead

      = $16,500,000 - $16,000,000

      = $ 500,000

So these overheads are over applied by $500,000