Question

Thomlin Company forecasts that total overhead for the current year will be $11,544,000 with 156,000 total...

Thomlin Company forecasts that total overhead for the current year will be $11,544,000 with 156,000 total machine hours. Year to date, the actual overhead is $6,837,600, and the actual machine hours are 88,800 hours. If 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

a.$266,400 underapplied

b.$201,600 underapplied

c.$266,400 overapplied

d.$201,600 overapplied

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Answer #1

Given information

Thomlin Company applies the Total Overheads using the estimated machine hours as a base.

Estimated total overheads = $11,544,000

Actual total overheads = $6,837,600

Estimated machine hours = 156,000 machine hours

Predetermined overhead rate = Estimated total overheads / Estimated machine hours = $11,544,000 / 156,000 = $74 per machine hour

Applied overheads = Actual machine hours x Predetermined overhead rate = 88,000 hours x $74 per hour = $6,571,200

Actual overheads incurred = $6,837,600

At the end of the year, since the overhead applied is LESS than the actual overheads, the overhead is said to be under-applied.

Under-applied overhead = Actual overheads incurred - Applied overheads = $6,837,600 - $6,571,200 = $266,400

Therefore, correct answer is $266,400 underapplied.

Option a. is correct answer

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