Question

Vaughn Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are estimated to total $282,464 for the year, and machine usage is estimated at 126,100 hours.

For the year, $324,848 of overhead costs are incurred and 130,200 hours are used.

a) Compute the manufacturing overhead rate for the year

b) What is the amount of under or overapplied overhead at Dec 31?

c) The adjustment to assign the under/over applied over to cost of goods sold will __________ decrease/increase? manufacturing overhead and _____________ decrease/increase? cost of goods sold

Answer 1

a.

Estimated overhead = $282,464

Estimated machine hours = 126,100

Predetermined overhead rate = Estimated overhead/Estimated machine hours

= 282,464/126,100

= $2.24 per machine hour

b.

Overhead applied = Actual machine hours x Predetermined overhead rate

= 130,200 x 2.24

= $291,648

Actual overhead = $324,848

Underapplied overhead = Actual overhead - Actual overhead

= 324,848 - 291,648

= $33,200

c.

The adjustment to assign the under/over applied over to cost of goods sold will increase. manufacturing overhead and increase cost of goods sold