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Verstraten Company uses normal costing. It allocates manufacturing overhead costs using a budgeted rate per​ machine-hour. The following data are available for 2017​:

Budgeted manufacturing overhead costs
$3,950,000
Budgeted machine-hours
197,500
Actual manufacturing overhead costs
$3,790,000
Actual machine-hours
191,500

User Mayumi
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1 Answer

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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.

User Alex Parloti
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