Question

Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much is the over- or underapplied overhead

Answer 1

Answer:

Overhead application rate

= Budgeted overhead

  Budgeted machine hours

= $266,400

  18,500 hours

= $14.40 per machine hour

Overhead applied

= Overhead application rate x Actual machine hours

= $14.40 x 19,050 hours

= $274,320

Under-applied overhead

= Overhead applied - Actual factory overhead

= $274,320 - $287,920

= $13,600

Explanation:

In this question, there is need to determine the overhead application rate, which is the ratio of budgeted factory overhead to budgeted machine hours. Then, we will calculate the overhead applied, which is overhead application rate multiplied by actual machine hours. Under-applied overhead is the difference between overhead applied and actual factory overhead.                              .