uzadis Company makes furniture using the latest automated te

uzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The predetermined overhead rate was based on a cost formula that estimates $880,000 of total manufacturing overhead for an estimated activity level of 88,000 machine-hours. During the year, a large quantity of furniture on the market resulted in cutting back production and a buildup of furniture in the company’s warehouse. The company’s cost records revealed the following actual machine hours and manufacturing overhead cost for the year: Machine-hours 79,000 Manufacturing overhead cost $ 836,000 Required: 1. Compute the underapplied or overapplied overhead.

Solution

Predetermined overhead rate = 880000/88000 = $10 Overhead applied = 79000*10 = 790000 Underapplied overhead = 836000-790000= 46000