Reference no: EM13138879
Erickson Company applies unit-related manufacturing overhead on the basis of machine hours. The following unit-related overhead data were accumulated by the accounting department:
Estimated Actual
Machine Hours 450,000 600,000
Overhead costs $720,000 $950,000
What is the amount of over- or under applied overhead?
Predetermined Overhead Rate = $720,000 ÷ 450,000 ≈ $1.79
Actual Overhead Costs = $950,000 (given)
Estimated Overhead Costs = $1.79 * 600,000 = $1,074,000
Difference = $1,074,000 - $950,000 = $124,000 Underapplied