Question

Predetermined Overhead Rate, Application of Overhead Findley Company and Lemon Company both use predetermined overhead rates to apply manufacturing overhead to production. Findley's is based on machine hours, and Lemon's is based on materials cost. Budgeted production and cost data for Findley and Lemon are as follows: Findley Lemon Manufacturing overhead $912,000 $990,000 Units 20,000 60,000 Machine hours 48,000 33,750 Materials cost $450,000 $1,800,000 At the end of the year, Findley Company had incurred overhead of $915,000 and had produced 19,600 units using 47,780 machine hours and materials costing $445,000. Lemon Company had incurred overhead of $972,000 and had produced 61,500 units using 32,650 machine hours and materials costing $1,777,500. Required: 1. Compute the predetermined overhead rates for Findley Company and Lemon Company, Predetermined Overhead Rate Findley per machine hour Lemon of materials cost 2. Was overhead over- or underapplied for each company? Findley underapplied Lemon overapplied By how much Findley: $ Lemon: s

Answer 1

Answer - Part - (1) -

Computation of Predetermined Overhead Rates

Company	Explanation	Predetermined Overhead Rates
Findley	Manufacturing overhead / Machine hours = $912000 / 48000 hours	$19 per machine hour
Lemon	Manufacturing overhead / Materials cost = $990000 / $1800000	55% of materials cost

.

Answer - Part - (2) -

Computation of Overhead over or Under applied -

Company
Findley	Underapplied
Lemon	Overapplied

By how much?

Company	Explanation	Amount
Findley	$915000 - ($19 per machine hour * 47780 machine hour)	$7180 underapplied
Lemon	$972000 - (55% * $1777500 materials cost )	$5625 overapplied