Question

Keystone Company applies overhead on the basis of machine hours. Given the following data, compute the amount of overhead under- or over applied for the period.
Estimated annual overhead cost $2,250,000
Actual annual overhead cost $2,227,500
Estimated machine hours 300,000
Actual machine hours 295,000
A) $1,120,000 applied and $25,000 overapplied
B) $1,200,000 applied and $25,000 overapplied
C) $1,120,000 applied and $25,000 underapplied
D) $1,145,000 applied and neither under- nor overapplied

Answer 1

Answer:

Overhead allocated= $2,212,500

Underapplied= $15,000

Explanation:

Giving the following information:

Estimated annual overhead cost $2,250,000

Actual annual overhead cost $2,227,500

Estimated machine hours 300,000

Actual machine hours 295,000

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

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

Estimated manufacturing overhead rate= 2,250,000/300,000= $7.5 per machine hour

Now, we need to allocate the overhead based on actual machine hours:

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

Allocated MOH= 7.5* 295,000= $2,212,500

Finally, we calculate the under/over applied overhead:

Over/under allocation= real MOH - allocated MOH= 2,227,500 - 2,212,500= 15,000 undeallocated

Answer 2

Answer:

The amount of overhead under-or over applied for the period

Applied $=\ 2,212,500$

Over applied $=\ 15,000$

Explanation:

Estimated annual overhead cost $=\ 2,250,000$

Actual annual overhead cost $=\ 2,227,500$

Estimated machine hours $=300,000$

Actual machine hours $=295,000$

Predetermined overhead rate=Estimated annual overhead cost / Estimated machine hours

$=2,250,000/300,000$  

$=\ 7.50$ per machine hour

Overhead applied=Actual machine hours/Overhead rate

$=295,000*7.50$

$=\ 2,212,500$

Over/under allocation= Actual annual overhead cost - Overhead applied

$= \ 2,227,500 - \ 2,212,500$

$=\ 15,000$  

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