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
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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