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The Cavy Company estimates that the factory overhead for the following year will be $250,000. The company calculated its Predetermined Overhead Rate to be $31.25 per machine hour for the year. The machine hours incurred for the month of April for all of the jobs were 4,780. If the actual factory overhead totaled $141,800, determine the over- or underapplied amount for the month.

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Answer:

Overapplied overhead= $7,575 overapplied

Explanation:

First, we need to allocate overhead costs based on actual hours:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 31.25*4,780

Allocated MOH= $149,375

Now, the over/under allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 141,800 - 149,375

Overapplied overhead= $7,575 overapplied

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