Question

The Thomlin Company forecasts that total overhead for the current year will be $11,506,000 with 165,000 total machine hours. Year to date, the actual overhead is $7,898,000 and the actual machine hours are 81,000 hours. If the Thomlin Company uses a predetermined overhead rate based on machine hours for applying overhead, as of this point in time (year to date), the overhead is Round the factory overhead rate to the nearest dollar before multiplying by the number of hours.

Round the factory overhead rate to the nearest dollar before multiplying by the number of hours.
A. $3,342,000 overapplied
B. $2,228,000 underapplied
C. $2,228,000 overapplied
D. $3,342,000 underapplied

Answer 1

B. $2,228,000 underapplied

Step-by-step explanation:

Calculation for the what the overhead

First step is to calculate the Predetermined Overhead rate

Using this formula

Predetermined Overhead rate

= Budgeted Overhead Expense ÷ Budgeted Machine Hours

Let plug in the formula

Predetermined Overhead rate

= $11,506,000 ÷ 165,000

Predetermined Overhead rate= 70 per machine hour

Second step is to calculate the Allocated MOH using this formula

Allocated MOH = Actual machine hours × Predetermined Overhead rate

Let plug in the formula

Overhead applied= 81,000 hours × 70 per machine hour

Overhead applied= $5,670,000

Now let calculate Overhead Underapplied using this formula

Overhead Underapplied= Actual overhead - Allocated MOH

Let plug in the formula

Overhead Underapplied= $7,898,000 - $5,652,180

Overhead Underapplied= $2,228,000

Therefore the Overhead is $2,228,000 underapplied