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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