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Erca, Inc. produces automobile bumpers. Overhead is applied on the basis of machine hours required for...

Erca, Inc. produces automobile bumpers. Overhead is applied on the basis of machine hours required for cutting and fabricating. A predetermined overhead application rate of $15.00 per machine hour was established for 2016.

(a.) If 9,000 machine hours were expected to be used during 2016, how much overhead was expected to be incurred?

(b.) Actual overhead incurred during 2016 totaled $135,000, and 9,200 machine hours were used during 2016. Calculate the amount of over- or underapplied overhead for 2016.

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Answer #1

a) Computation of Expected Overhead:

Predetermined overhead rate (Given)= $15 per machine hour

Expected Machine hours (Given)= 9,000 hours

Expected Overhead = Expected Machine hours * Predetermined overhead rate

= 9,000 * $15

= $135,000

b) Computation of Over-applied or Under-applied overhead:

Actual Overhead (Given)= $135,000

Applied Overhead = Actual Machine hours * Predetermined overhead rate

= 9,200 * $15

= $138,000

Since Applied Overhead ($138,000) is more than Actual Overhead ($135,000) , Overhaed is Over-applied.

Over-applied Amount= Applied Overhead - Actual Overhead

= 138,000 - 135,000

= $3,000 (Over-applied)

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