Question

Great Eagle Company allocates overhead based on machine hours. They estimated overhead costs for the year to be $380,000. Estimated machine hours was 5,000 and direct labor hours was 2,000. Estimated direct labour cost was $250,000 and direct material cost was $140,000. Actual hours and overhead costs for the year were 4,300 machine hours and $310,000 of overhead.

Required:       

1. Calculate the overhead application rate for the year.
2. What is the amount of applied overhead for the year?
3. What is the estimated total cost of production for the year?
4. What is the amount of under or overapplied overhead for the year? Indicate whether it is over- or underapplie

Answer 1

a. Overhead application rate for the year = estimated overhead costs / Estimated machine hours

= $380000/5000 = $76 per hour

b.Applied overhead for the year = Overhead application rate x Actual machine hours

= $76 per hour x 4,300 hours

= $326800

c. Estimated total cost of production = Estimated direct labour cost + direct material cost +estimated overhead costs

= $250,000 + $140,000 + $380000

= $770,000

d. Over (under) applied overhead = Applied overhead- Actual overhead

= $326800 - $310,000

= $16800