Question

At the beginning of the year, Monroe Company estimates annual overhead costs to be $600,000, and that 300,000 machine hours will be operated. Using machine hours as a base. Company used 315,000 machine hours in producing their jobs. Moreover, the actual manufacturing overhead incurred during a year $650,000. The amount of under or over-applied overhead is: a. $20,000 under-applied. b. $50,000 over-applied. c. $30,000 under-applied. d. $20,000 over-applied.

Answer 1

A. $20,000 under applied overhead

Step-by-step explanation:

Firstly, we start with determining the predetermined overhead rate.

Predetermined manufacturing overhead rate = Total estimated overhead cost for the period / Total amount of allocation base

= $600,000 / 300,000

= $2 per machine hours

Now, we can allocate overhead

Allocated MOH = Estimated manufacturing overhead rate × Actual amount of allocation base

= $2 × 315,000

= $630,000

Finally, the under/Over allocation

Under/Over applied overhead = real overhead - Actual overhead

= $650,000 - $630,000

= $20,000