Question

Shivers Ice Cream Company estimates its factory overhead costs to be $35,000 and machine hours to be 5,000 for the year. If the actual hours worked on Jobs 333 and Jobs 334 total 4,980 and actual factory overhead costs are $35,700, what is the amount of either over- or underapplied factory overhead?

Answer 1

Answer:

Under/over applied overhead= $840 underallocated

Explanation:

Giving the following information:

Estimated overhead= $35,000

Estimated machine hours= 5,000

The actual hours worked total 4,980 and actual factory overhead costs are $35,700.

First, we need to calculate the estimated overhead rate:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 35,000/5,000= $7 per machine hour

Now, we can allocate overhead based on actual machine hours:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 7*4,980= $34,860

Finally, we determine the over/under allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 35,700 - 34,860

Under/over applied overhead= $840 underallocated