Rumington Popcorn uses a standard cost system and applies overhead on a per unit basis. The company estimated that 30,000 units would be produced in 2014 and uses this quantity to establish its standard overhead cost per unit. The cost formula for overhead costs used to develop the standard overhead cost per unit was:
Overhead = $120,000 + $6 per unit
During the year, actual overhead cost was $340,000. Actual units produced were 32,000. How much is the amount of under or over applied overhead for 2014?

Question

Quizplus · Accepted Answer

The standard overhead cost per unit is calculated as ($120,000 + $6 * 30,000 units) / 30,000 units = $10 per unit. For 32,000 units, the applied overhead is 32,000 * $10 = $320,000. The actual overhead was $340,000, so the overhead is underapplied by $340,000 - $320,000 = $20,000.

Rumington Popcorn Uses a Standard Cost System and Applies Overhead