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Check your worksheet by changing the estimated total amount of the allocation base in the Data area to 50,000 machine-hours, keeping all of the other data the same as in the original example. If your worksheet is operating properly, the predetermined overhead rate should now be $6.00 per machine-hour. If you do not get this answer, find the errors in your worksheet and correct them. g

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Answer:

Data

Allocation Base                                                           Machine Hours

Estimated manufacturing overhead cost                  $300,000

Estimated total amount of allocation base                75,000 machine hours

Actual manufacturing overhead cost                         $290,000

Actual total amount of the allocation base                68,000 machine hours

Computation of predetermined overhead rate

Estimated manufacturing overhead cost                   $300,000

Estimated total amount of allocation base                 75,000 machine hours

Predetermined overhead rate                                        $4 per machine hour

= 300,000/75,000

= $4

Computation of underapplied or overapplied manufacturing overhead

Actual manufacturing overhead cost                       $290,000

Manufacturing overhead cost applied to WIP during the year:

   Predetermined overhead rate                                    $4 per machine hour

   Actual total amount of allocation base                 68,000 machine hours

   Manufacturing overhead applied                          $272,000

= 68,000 * 4 = $272,000

Underapplied (overapplied) manufacturing             $18,000 underapplied

overhead

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