Question

Elevated Expectations Company projected the following overhead costs and cost drivers for past year (assume that actual overhead and budgeted overhead were the same):

Overhead Item	Expected Costs	Cost Driver	Expected Quantity
Setup costs	$12,150	Number of setups	50
Ordering costs	4,050	Number of orders	30
Maintenance	17,400	Machine-hours	600
Power	3,000	Kilowatt-hours	600
		Direct Labor Hours	500

Elevated Expectations contracted for 2 jobs, both of which were completed during the year. Production managers reported the following data in relation to these jobs:

	Job 1	Job 2
Direct materials	$19,000	$14,000
Direct labor	$14,000	$7,000
Direct labor-hours	280	120
Number of setups	15	14
Number of orders	17	8
Machine-hours	200	120
Kilowatt-hours	300	150

NOTE: Round per-cost-driver costs in intermediate calculations to two decimal places.

What is the amount of under- or over-applied overhead for the year?

Select one or more:

a. Over-Applied $14,618

b. Under-Applied $14,648

c. Under-Applied $21,882

d. Over-Applied $21,682

Answer 1

Overhead Item	Expected costs	Cost Driver rate
Setup costs	12150	243	=12150/50
Ordering costs	4050	135	=4050/30
Maintenance	17400	29	=17400/600
Power	3000	5	=3000/600
Total	36600
	Job 1	Job 2	Total
Setup costs	3645	3402
Ordering costs	2295	1080
Maintenance	5800	3480
Power	1500	750
Total	13240	8712	21952
	Job 1	Job 2
Setup costs	=15*243	=14*243
Ordering costs	=17*135	=8*135
Maintenance	=200*29	=120*29
Power	=300*5	=150*5
Under-Applied overhead	14648	=36600-21952
Option B Under-Applied $14,648 is correct