Question

Waterway Industries applies overhead on the basis of machine hours. Given the following data, compute overhead...

Waterway Industries applies overhead on the basis of machine hours. Given the following data, compute overhead applied and the under- or overapplication of overhead for the period:

Estimated annual overhead cost $1800000
Actual annual overhead cost $1775000
Estimated machine hours 500000
Actual machine hours 290000

$1044000 applied and $731000 underapplied

$1800000 applied and $731000 overapplied

$1044000 applied and $731000 overapplied

$1775000 applied and neither under-nor overapplied

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Answer #1

Answer

OPTION A i.e. $1044000 applied and $731000 underapplied

Calculations:

Machine Hour rate = Estimated annual overhead cost / Estimated machine hours

= $ 1800,000 / 500,000

= $ 3.6 per hour

Applied overheads = Machine Hour rate * Actual machine hours

= 3.6 * 290,000

= $ 1,044,000

Under/Overabsorbed Overheads = Actual Overheads – Applied overheads

= $ 1775,000 - $ 1,044,000

= $ 731,000 Underabsorbed

Clearly, option A is correct and other options are incorrect.

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