Question

Seaton Enterprises used a normal costing system during 2018 with machine hours as the cost drive for applying manufacturing overhead. At the beginning of 2018, manufacturing overhead was budgeted to be $600,000. Seaton also budgeted 8,000 labor hours and 2,000 machine hours to be used during the year. Actual overhead for the year was $610,000. Seven thousand eight hundred labor hours and 2,100 machine hours were actually used during the year. The amount of over applied or under applied manufacturing overhead (indicate the amount and whether it was under or over applied) for 2018 was:

Answer 1

Answer:

Predetermined Overhead Rate = Estimated Manufacturing Overhead / Estimated Machine Hour
Predetermined Overhead Rate = $600,000 / 2,000
Predetermined Overhead Rate = $300

Actual Overhead = $610,000

Overhead Applied = Machine Hour applied * Predetermined Overhead Rate
Overhead Applied = 2,100 * $300
Overhead Applied = $630,000

As Overhead applied $630,000 is more than the actual overhead $610,000, the overhead is over-applied by $20,000 ($630,000 - $610,000).