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Nil Co. uses a predetermined overhead rate of $3.00 per machine hour to apply ma

ID: 2395834 • Letter: N

Question

Nil Co. uses a predetermined overhead rate of $3.00 per machine hour to apply manufacturing overhead to jobs based on estimated manufacturing overhead of $900,000 and estimated machine hours of 300,000 hours. Actual manufacturing overhead amounted to $890,000, with actual machine hours of 290,000 hours. Manufacturing overhead for the year was:

Overapplied by $30,000

Underapplied by $20,000

Overapplied by $20,000

Underapplied by $10,000

Overapplied by $10,000

a)

Overapplied by $30,000

b)

Underapplied by $20,000

c)

Overapplied by $20,000

d)

Underapplied by $10,000

e)

Overapplied by $10,000

Explanation / Answer

Applied manufacturing overhead=Predetermined overhead rate*Actual machine hours

=(3*290000)=$870000

Hence since Applied manufacturing overhead is less than the actual overheads;

overhead underapplied=(890000-870000)=$20000(B).

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