Question

Sheridan Company thinks machine hours is the best activity base for its manufacturing overhead. The estimate of annual overhead costs for its jobs was $2550000. The company used 1000 hours of processing on Job No. B12 during the period and incurred overhead costs totaling $2700000. The budgeted machine hours for the year totaled 20000. How much overhead should be applied to Job No. B12?

Answer 1

$127,500

Step-by-step explanation:

The Estimated Overhead cost of $2,550,000 divided by the budgeted machine hours of 20,000 gives us the overhead rate per machine hour of $127.50.

This rate will then be multiplied by the machine hours used by Job No. B12.

So, Overhead Rate of $127.50 multiplied by 1,000 machine hours will give $127,5000 which is the overhead cost that should be applied to Job No. B12 .

Note: Don't use the overhead incurred ($2,700,000) because this is the "Actual" overhead and the problem requires the "Applied" amount which is based on estimates.