Final answer:
The budgeted manufacturing overhead rate is calculated to be $20 per machine-hour. The manufacturing overhead allocated during 2017 is $3,830,000. The amount of overallocated manufacturing overhead is $40,000.
Step-by-step explanation:
The question relates to the calculation of manufacturing overhead rates and variances, which falls under managerial accounting, a subdivision of business. We will calculate the budgeted manufacturing overhead rate, actual manufacturing overhead allocated, and the amount of under- or overallocated manufacturing overhead.
1. Calculate the budgeted manufacturing overhead rate:
The budgeted manufacturing overhead rate is calculated by dividing the budgeted manufacturing overhead costs by the budgeted machine-hours.
Rate = Budgeted manufacturing overhead costs / Budgeted machine-hours
Rate = $3,950,000 / 197,500 machine-hours
Rate = $20 per machine-hour
2. Calculate the manufacturing overhead allocated during 2017:
This can be found by multiplying the budgeted rate by the actual machine-hours used.
Allocated manufacturing overhead = Budgeted rate per machine-hour × Actual machine-hours
Allocated manufacturing overhead = $20 per machine-hour × 191,500 machine-hours
Allocated manufacturing overhead = $3,830,000
3. Calculate the amount of under- or overallocated manufacturing overhead:
This is calculated by comparing the actual manufacturing overhead costs to the allocated manufacturing overhead.
Under- or overallocated amount = Actual manufacturing overhead costs - Allocated manufacturing overhead
Under- or overallocated amount = $3,790,000 - $3,830,000
Under- or overallocated amount = -$40,000 (indicating an overallocation)
Understanding the amount of under- or overallocated manufacturing overhead is critical because it affects the accuracy of cost information. This can lead to decision-making implications, as costs might be higher or lower than what is reported, which can impact pricing, planning, and budgeting within the company.