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16 November, 04:49

Keystone Company applies overhead on the basis of machine hours. Given the following data, compute the amount of overhead under - or over applied for the period.

Estimated annual overhead cost $2,250,000

Actual annual overhead cost $2,227,500

Estimated machine hours 300,000

Actual machine hours 295,000

A) $1,120,000 applied and $25,000 overapplied

B) $1,200,000 applied and $25,000 overapplied

C) $1,120,000 applied and $25,000 underapplied

D) $1,145,000 applied and neither under - nor overapplied

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  1. 16 November, 05:05
    0
    Overhead allocated = $2,212,500

    Underapplied = $15,000

    Explanation:

    Giving the following information:

    Estimated annual overhead cost $2,250,000

    Actual annual overhead cost $2,227,500

    Estimated machine hours 300,000

    Actual machine hours 295,000

    First, we need to calculate the estimated manufacturing overhead rate we need to use the following formula:

    Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

    Estimated manufacturing overhead rate = 2,250,000/300,000 = $7.5 per machine hour

    Now, we need to allocate the overhead based on actual machine hours:

    Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

    Allocated MOH = 7.5 * 295,000 = $2,212,500

    Finally, we calculate the under/over applied overhead:

    Over/under allocation = real MOH - allocated MOH = 2,227,500 - 2,212,500 = 15,000 undeallocated
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