Question

The Thomlin Company forecasts that total overhead for the current year will be $11,834,000 with 200,000 total machine hours. Year to date, the actual overhead is $7,509,000 and the actual machine hours are 88,000 hours. If the Thomlin Company uses a predetermined overhead rate based on machine hours for applying overhead, as of this point in time (year to date), the overhead is

Round the factory overhead rate to the nearest dollar before multiplying by the number of hours.

a.$3,475,500 overapplied

b.$3,475,500 underapplied

c.$2,317,000 underapplied

d.$2,317,000 overapplied

Answer 1

Predetermined overhead rate = Estimated overhead / estimated total machine hours

Predetermined overhead rate = $11,834,000 / 200,000

Predetermined overhead rate = $59.17

Predetermined overhead rate = $59 (rounded off to nearest dollar)

Total overhead applied = Actual machine hours * Predetermined overhead rate

Total overhead applied = 88,000 hours * $59

Total overhead applied = $5,192,000

Actual overhead = $7,509,000

Applied overhead is less than actual overhead by [7,509,000 - $5,192,000] = $2,317,000

Since Applied overhead is less than actual overhead, the overhead is said to be under applied.

$2,317,000 under-applied