Medusa Products uses a job-order costing system. Overhead costs are applied to j
ID: 2437575 • 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 88,800 machine-hours and incur $346,320 in manufacturing overhead costs for the year.
Required:
1. Compute the company's predetermined overhead rate. (Round your answer to 2 decimal places.)
2. Assume that during the year the company actually worked only 81,900 machine-hours and incurred $340,000 of manufacturing overhead costs. Compute the amount of underapplied or overapplied overhead for the year. (Round your intermediate calculation to 2 decimal places.)
Predetermined overhead rate ............................... Per MHExplanation / Answer
1. Predetermined overhead rate = Manufacturing overhead incurred / Estimated machine hours
= $346,320 / 88,800 machine-hours
= $3.9 per hour
Therefore, the company’s predetermined overhead rate is $3.9 per hour.
2. Actual overhead rate = Actual overhead incurred / Actual hours worked
= $340,000 / 81,900 machine-hours
= $4.15 per hour
Under applied overhead rate = Actual overhead rate – Predetermined overhead rate
= $4.15 per hour - 3.9 per hour
= $0.25 per hour
Under applied overhead for the year = Under applied overhead rate × Actual hrs worked
= $0.25 per hour × 81,900 hours
= $20,475.
Thus, the under applied overhead for the year is $20,475.