Exercise 15-5 (Part Level Submission) Ikerd Company applies manufacturing overhe

Question

Exercise 15-5 (Part Level Submission)

Ikerd Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $276,980 for the year, and machine usage is estimated at 125,900 hours.

For the year, $351,020 of overhead costs are incurred and 132,600 hours are used.

(a)

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(b)

Exercise 15-5 (Part Level Submission)

Ikerd Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $276,980 for the year, and machine usage is estimated at 125,900 hours.

For the year, $351,020 of overhead costs are incurred and 132,600 hours are used.

Explanation / Answer

a.Manufacturing overhead rate=Overhead costs estimated/estimated  machine hours

=(276980/125900)=$2.2/machine hour

b.applied overhead=(Manufacturing overhead rate*Actual machine hour used)

=(2.2*132600)=$291720

Hence since applied overhead is less than actual overheads;

underapplied overhead=(351020-291720)=$59300.

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