Question

Sutherland Company listed the following data for 2019:

Budgoted factory overhead $2,100,000
Budgeted direct labor hours 89,000
Budgeted machine hours 51,000
Actual factory overhead 2,201,000
Actual direct labor hours 83,700
Actual machine hours 48,900
If overhead is applied based on machine hours, the overapplied/underapplied overhead is:__________ (round calculations to 2 significant digits)
a) $176,358 underapplied.
b) $176,358 overapplied.
c) $187,298 underapplied
d) $187.298 overapplied.

Answer 1

c) $187,298 underapplied

Step-by-step explanation:

The computation of the overhead or underapplied overhead is shown below:

But before that the predetermined overhead, applied manufacturing overhead need to be computed

Predetermine overhead rate is

= Estimated factory overhead ÷ estimated machine hours

= $2,100,000 ÷ 51,000

= $41.18

Now the applied overhead is

= Actual machine hours × predetermined overhead rate

= 48,900 × $41.18

= $2,013,702

As, applied overhead is less than actual overhead

So, the Underapplied overhead is

= $2,201,000 - $2,013,702

= $187,298