Boston, Inc.applies manufacturing overhead at the rate of $40 per machine hour.Budgeted machine hours for the current period were anticipated to be 120,000; however, a lengthy strike resulted in actual machine hours being worked of only 90,000.Budgeted and actual manufacturing overhead ﬁgures for the year were $4,800,000 and $4,180,000, respectively.On the basis of this information, the company's year-end overhead was:
A)overapplied by $580,000.
B)underapplied by $580,000.
C)overapplied by $1,200,000.
D)underapplied by $1,200,000.
E)underapplied by $900,000.

Question

Quizplus · Accepted Answer

To determine the overhead applied for the current period, we need to multiply the actual machine hours by the predetermined overhead rate:
Overhead applied = Actual machine hours x Predetermined overhead rate
Overhead applied = 90,000 x $40
Overhead applied = $3,600,000

To determine the amount of under- or overapplied overhead, we need to compare the overhead applied to the actual overhead incurred:
Under- or overapplied overhead = Actual overhead incurred - Overhead applied
Under- or overapplied overhead = $4,180,000 - $3,600,000
Under- or overapplied overhead = $580,000

Therefore, the company's year-end overhead was underapplied by $580,000.