The following information is provided for the year: Actual overhead £225,000; Ac
ID: 2577777 • Letter: T
Question
The following information is provided for the year: Actual overhead £225,000; Actual machine hours worked 30,000; Budgeted machine hours 20,000; Applied overhead 270,000. The under- or overapplied overhead was
Select one:
a. £20,000 underapplied
b. £20,000 overapplied
c. £45,000 overapplied
d. Cannot be determined.
e. £40,000 overapplied
The following per unit information relates to a product produced by Creamer Company: Direct materials £30, Direct labour £15, Variable overhead £30, Fixed overhead £18. Fixed selling costs are £500,000 per year, and variable selling costs are £12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for £120 each. A customer has offered to buy 60,000 units for £90 each. The profit/loss associated with the special order is
Select one:
a. £180,000
b. £200,000
c. £160,000
d. £210,000
e. £190,000
Explanation / Answer
Solution:
Under or Over Applied overhead is the difference between actual overhead incurred during the period and the overhead applied to production for that period.
Applied overheads are allocated to production based on predetermined overhead rate and the actual activity used during the period.
Here,
Actual Overheads = 225,000
Applied Overheads = 270,000
Applied Overheads are higher than the actual overheads incurred, hence the overheads are over applied.
Over Applied overhead = Applied overheads – Actual overheads = 270,000 – 225,000 = 45,000
Over Applied Overheads = 45,000
The correct option is c. 45,000 Overapplied
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