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 $1700000
Actual annual overhead cost $1675000
Estimated machine hours 400000
Actual machine hours 390000

$1657500 applied and $17500 overapplied
$1657500 applied and $17500 underapplied
$1675000 applied and neither under-nor overapplied
$1700000 applied and $17500 overapplied

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andromache andromache · Answer 1 · 2020-10-12T18:08:28+02:00

Answer:

$1657500 applied and $17500 overapplied

Explanation:

The computation of overhead applied and the under- or overapplication of overhead for the period is shown below:-

Predetermined overhead rate = Estimated annual overhead ÷ Estimated machine hours

=($1,700,000 ÷ 400,000)

= $4.25 per machine hours

Overhead applied = Predetermined overhead rate × Actual machine hours

= $4.25 × 390,000

= $1,657,500

The overhead applied is lower than the actual overhead cost;

overhead underapplied = $1,675,000 - $1,657,500

= $17,500