Waheed Co: Budgeted manufacturing overhead rate, allocated overhead, over, under

Question

Waheed Co: Budgeted manufacturing overhead rate, allocated overhead, over, under

4.19 Waheed Company uses normal costing. It allocates manufacturing overhead costs using a budgeted rater per machine-hour. The following data are available for 2008:

Budgeted manufacturing overhead costs $2850000
Budgeted machine-hours 190000
Actual manufacturing overhead costs $2910000
Actual machine-hours 195,000

1. Calculate the budgeted manufacturing overhead rate.
2. Calculate the manufacturing overhead allocated during 2008.
3. Calculate the amount of under- or overallocated manufacturing overhead.

Explanation / Answer

1. budgeted manufacturing overhead rate = Budgeted manufacturing overhead cost / budgeted machine hours                                                               = 2850000/190000                                                                = $15 per Machine Hour 2. Manufacturing Overhead allocated = budgeted manufacturing overhead rate * actual machine hours                                                           = 15 * 195000                                                          = $2,925,000 3. Actual manufacturing overhead costs = $2910000 Overhead allocated is more than actual overhead. There is overallocation. Overallocated manufacturing overhead = Manufacturing Overhead allocated - Actual manufacturing overhead costs                                                             = 2925000 - 2910000                                                             = $15,000

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