Question

Pilgrim Company applies overhead on the basis of machine hours. Given the following data, compute overhead applied and the under- or overapplication of overhead for the period:Estimated annual overhead cost $1,200,000Actual annual overhead cost $1,150,000Estimated machine hours 300,000Actual machine hours 280,000 a. $1,120,000 applied and $30,000 underapplied.b. $1,120,000 applied and $30,000 overapplied.c. $1,150,000 applied and neither under- nor overapplied.d. $1,200,000 applied and $30,000 overapplied.

Answer 1

Answer:

Option (b) is correct.

Explanation:

Given that,

Estimated annual overhead cost = $1,200,000

Actual annual overhead cost = $1,150,000

Estimated machine hours = 300,000

Actual machine hours = 280,000

Overhead Applied:

= (Estimated annual overhead cost ÷ Estimated machine hours) × Actual machine hours

= ($1,200,000 ÷ 300,000) × 280,000

= $1,120,000

Overhead over applied:

= Actual annual overhead cost - Overhead Applied

= $1,150,000 - $1,120,000

= $30,000