Question

Medusa Products uses a job-order costing system. Overhead costs are applied to jobs on the basis of machine-hours. At the beginning of the year, management estimated that the company would work 86,000 machine-hours and incur $215,000 in manufacturing overhead costs for the year. Required: 1. Compute the company's predetermined overhead rate. (Round your answer to 2 decimal places.) 2. Assume that during the year the company actually worked only 80,500 machine-hours and incurred $210,000 of manufacturing overhead costs. Compute the amount of underapplied or overapplied overhead for the year. (Round your intermediate calculation to 2 decimal places.)

Answer 1

Answer:

1. $2.50

2. $8,855.00

Explanation:

1. The computation of the company's predetermined overhead rate is shown below:-

1. Predetermined Application rate = Manufacturing overhead costs ÷ Machine hours

= $215,000 ÷ 86,000

= $2.50

2. The computation of the amount of underapplied or overapplied overhead for the year is shown below:-

Actual application  = Manufacturing overhead costs ÷ Machine hours

= $210,000 ÷ 80,500

= 2.61

Now the under absrobed is

= 2.61 - 2.50

= 0.11

Now the under overhead is

= 80,500 × 0.11

= $8,855.00