Question

The Thomlin Company forecasts that total overhead for the current year will be $11,056,000 with 172,000...

The Thomlin Company forecasts that total overhead for the current year will be $11,056,000 with 172,000 total machine hours. Year to date, the actual overhead is $7,925,000 and the actual machine hours are 100,000 hours. If the Thomlin Company uses a predetermined overhead rate based on machine hours for applying overhead, as of this point in time (year to date), the overhead is

Round the factory overhead rate to the nearest dollar before multiplying by the number of hours.

a.$2,287,500 overapplied

b.$1,525,000 underapplied

c.$1,525,000 overapplied

d.$2,287,500 underapplied

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Answer #1

Calculation of Predetermined Overhead Rate :-

Predetermined Overhead Rate = Estimated Total Overheads / Estimated Machine Hours

Estimated Total Overheads = $ 11056000 [ Given ]

Estimated Machine Hours = 172000 [ Given ]

Hence ,Predetermined Overhead Rate = $ 11056000 / 172000 = $ 64.28 i.e $ 64 per machine hour

Calculation of Total Overhead Costs based on Predetermined Overhead Rate :-

Predetermined Overhead Rate = $ 64 per machine hour

Actual Machine Hours = 100000

Total Overhead costs based on Predetermined Overhead rate = $ 64 * 100000 machine hours = $ 6400000

Actual Overhead Costs = $ 7925000

Difference = Total Overhead costs based on Predetermined Overhead rate - Actual Overhead Costs

Difference = $ 6400000 - $ 7925000 = $ 1525000 Underapplied

Therefore , Overheads are $ 1525000 Underapplied.

Answer :- b. $ 1525000 Underapplied

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