Homework SourseCrane Company applies overhead on the basis of machine hours
Crane Company applies overhead on the basis of machine hours. Given the following data, compute overhead applied and the under- or overapplication of overhead for the period:
| Estimated annual overhead cost | $1400000 |
| Actual annual overhead cost | $1375000 |
| Estimated machine hours | 200000 |
| Actual machine hours | 190000 |
Solution
Predetermined overhead rate=Estimated annual overhead cost/Estimated machine hours
=(1400000/200000)=$7 per machine hours
Hence overhead applied=Predetermined overhead rate*Actual machine hours
=(7*190000)=$1330000
Hence since overhead applied is less than actual overhead cost;
overhead underapplied=(1375000-1330000)=$45000.
