Medusa Products uses a job-order costing system. Overhead costs are applied to j
ID: 1188854 • Letter: M
Question
Medusa Products uses a job-order costing system. Overhead costs are applied to jobs on the basis of machine-hours. At the beginning of the year, management estimated that the company would work 88,600 machine-hours and incur $336,680 in manufacturing overhead costs for the year.
Compute the company's predetermined overhead rate. (Round your answer to 2 decimal places.)
Assume that during the year the company actually worked only 81,800 machine-hours and incurred $330,000 of manufacturing overhead costs. Compute the amount of underapplied or overapplied overhead for the year. (Round your intermediate calculation to 2 decimal places.)
Medusa Products uses a job-order costing system. Overhead costs are applied to jobs on the basis of machine-hours. At the beginning of the year, management estimated that the company would work 88,600 machine-hours and incur $336,680 in manufacturing overhead costs for the year.
Explanation / Answer
a. predetermined overhead rate = Estimated overhead costs/estimated machine hours
= 336680/88600 = $3.80 per machine hour
b. Actual machine hours = 81,800 hours
Overheads as per predetermined rate = 3.80 * 81800 = $310,840
Actual overhead = $330,000
As actual overhead is > Applied overhead, it's underapplied overhead by 330,000 - 310840 = 19,160
Thus, Underapplied overhead of $19,160