Question

Chipata Corporation applies manufacturing overhead to jobs on the basis of machine-hours. Chipata estimated 25,000 machine-hours and $10,000 of manufacturing overhead cost for the year. During the year, Chipata incurred 26,200 machine-hours and $11,300 of manufacturing overhead. What was Chipata's underapplied or overapplied overhead for the year? Select one: a. $480 overapplied b. $820 underapplied c. $1,300 overapplied d. $1,300 underapplied

Answer 1

b. $820 underapplied

Step-by-step explanation:

As per the given question the solution of underapplied or overapplied overhead for the year is provided below:

here, we will find first predetermined overhead rate to reach the underapplied or overapplied overhead

Predetermined overhead rate = Estimated manufacturing cost ÷ Estimated machine hours

= $10,000 ÷ 25,000

= $0.40 per machine hour

Manufacturing overhead underapplied or overapplied = Actual manufacturing overhead - Applied manufacturing overhead

= $11,300 - (25,200 × $0.40)

= $11,300 - $10,480

Manufacturing overhead underapplied = $820

To reach Manufacturing overhead underapplied we simply put the values into formula.