Question

Lawrence Company applies manufacturing overhead to jobs based on machine hours used.

Overhead costs are estimated to be​ $300,000.

Estimated machine hours are​ 125,000 hours, and estimated direct labor hours are​ 50,000 hours.

During the​ year, actual overhead costs totaled​ $322,0000 and it incurred​ 130,000 machine hours and​ 46,000 direct labor hours.

What is the amount of over or​ under-allocated overhead?

Answer 1

Under/over applied overhead= $10,000 underallocated

Step-by-step explanation:

Giving the following information:

Overhead costs are estimated to be​ $300,000.

The estimated machine hours are​ 125,000 hours.

During the​ year, actual overhead costs totaled​ $322,0000 and it incurred​ 130,000 machine hours.

First, we need to calculate the estimated manufacturing overhead rate:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Estimated manufacturing overhead rate= 300,000/125,000= $2.4 per machine hour

Now, we can allocate overhead

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

Allocated MOH= 2.4*130,000= $312,000

Finally, we determine the under/over allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 322,000 - 312,000= $10,000 underallocated