Question

$ Selected cost data for Books Co, who apply overhead based on machine hours, are as follows: Estimated overhead cost for the year 840,000 Estimated direct labor cost for the year 1,550,000 Estimated machine hours for the year 60,000 hours Direct labor cost 1,160,000 Rent on Plant Building 620,000 Depreciation, factory equipment 40,000 Selling and Marketing expenses 26,500 $ 23,500 Corporate legal counsel fees Supervision and scheduling wages Machine hours 96,000 73,000 hours What is the over or under applied overhead?

Answer 1

Predetermined overhead rate = Estimated overhead cost / Estimated machine hours = 840000 / 60000

14

per machine hour

Rent on plant building	620000
Depreciation, factory equipment	40000
Supervision and scheduling wages	96000
Actual overhead cost	756000
Overhead applied = Actual machine hours * Predetermined overhead rate = 73000 * 14	1022000
As the overhead applied are more than the actual overhead cost, the overhead is overapplied

Overapplied overhead = Overhead applied - Actual overhead cost = 1022000 - 756000

266000