Question

Hello,

Please have a look at the picture attached and help me with questions below.

1. Compute the overhead allocation rate. If job number 1070 is chosen, find the allocated overhead and any over or under-applied overhead.

Q1. Yahya Company uses a job costing system with machine hours as the allocation base for overhead. The company uses normal costing to develop the overhead allocation rate. The following data are available for the latest accounting period: Estimated fixed factory overhead cost Estimated machine-hours Actual fixed factory overhead cost incurred Actual machine-hours used $200,000 140,000 $220,000 160,000 Jobs worked on: Job No. 1040 1050 1060 1070 Machine Hours Used 17,000 19,000 12,000 11,000

Answer 1

Overhead allocation rate=Estimated fixed factory overhead cost/Estimated machine hours=200000/140000=$ 1.428571 per machine hour
Allocated overhead to Job 1070=Machine hours used*Overhead allocation rate=11000*1.428571=$ 15714
Total overhead allocated=Actual machine hours used*Overhead allocation rate=160000*1.428571=$ 228571
Actual fixed factory overhead cost=$ 220000
Allocated OH > Actual OH.
Hence,overhead is over-applied
Over-applied overhead=228571-220000=$ 8571
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