Question

Logan Products computes its predetermined overhead rate annually on the basis of machine-hours. At the beginning of the year, it estimated that its total manufacturing overhead would be $368,500 and machines would be run a total of 42,000 hours. Its actual total manufacturing overhead for the year was $356,400 and its actual total machine-hours was 41,500 hours. Required: Compute the company’s predetermined overhead rate for the year, calculate the total overhead applied, and determine the amount of under- or overapplied overhead in the year. (Round your predetermined overhead rate to 2 decimal places.)

Answer 1

Estimated manufacturing overhead = $368,500

Estimated machine hour = 42,000

Predetermined overhead rate = Estimated manufacturing overhead/Estimated machine hour

= 368,500/42,000

= $8.77 per machine hour

Actual machine hours = 41,500

Applied manufacturing overhead = Actual machine hours x Predetermined overhead rate

= 41,500 x 8.77

= $363,955

Actual manufacturing overehad = $356,400

Over applied manufacturing overhead = Applied manufacturing overhead - Actual manufacturing overehad

= 363,955 - 356,400

= $7,555

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