Question

Tom’s Tool & Die uses a predetermined factory overhead rate based on machine-hours. For August, Tom’s budgeted overhead was $465,500 based on a budgeted volume of 49,000 machine-hours. Actual overhead amounted to $412,000 with actual machine-hours totaling 43,500. Required: What was over- or underapplied manufacturing overhead in August?

Answer 1

Answer:

(-$1,250) over applied for the period

Explanation:

Predetermined overhead rate:

= budgeted overhead ÷ budgeted volume

= $465,500 ÷ 49,000

= $9.5

Overhead cost with 43,500 hours incurred, they have applied :

= Actual machine-hours × Predetermined overhead rate

=  43,500 × 9.5

= $413,250

They actually incurred $412,000 of overhead cost for the period so they have :

= Actual overhead - Overhead cost with 43,500 hours

= $412,000 - $413,250

= (-$1,250) over applied for the period.