Answer:
1. Machining Assembly
Budgeted overhead rates
= <u>Budgeted overhead</u> <u>5,850,000 </u> <u>7,812,000 </u>
Budgeted activity level 90,000 hours 124,000 hours
= $65/machine hr = $63/labour hr
2. Overhead applied
= Overhead application rate $65 x 80,000 hrs $63 x 100,000
x Actual activity level = $5,200,000 = $6,300,000
Under allocated overhead
= Overhead applied = $5,200,000 = $6,300,000
- Actual overhead - $5,470,000 - $8,234,000
$270,000 $1,934,000
Note: Actual machine hours of 80,000 hours and actual direct labour hours of 100,00 hours are assumed because these figures were omitted from the question.
Explanation:
Budgeted overhead rate is calculated as budgeted overhead for each department divided by budgeted activity level for each department. Overhead applied is budgeted overhead rate multiplied by actual activity level (actual hours) for each department. The actual machine hours and actual direct labour hours were omitted from the question. Thus, 80,000 machine hours and 100,000 direct labour hours were assumed for Machining Department and Assembly Department respectively. Then, under allocated overhead is calculated as overhead applied minus actual overhead incurred for each department.
