Question

Question 2

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

Overhead application rate = Estimated overhead/Estimated machine hours = 380,000/5,000 = 76 per mh

Applied overhead = Actual machine hours*overhead application rate = 4300 * 76 = 326,800

Total Cost of production = Direct Materials + Direct Labor + Overhead applied = 140,000+250,000+326,800 = 716,800

Actual overhead = 310,000 Applied overhead = 326,800 Difference = 16,800 So, overhead is over applied by 16,800

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