Cavy Company estimates that the factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs were 4,780. If the actual factory overhead totaled $141,800, determine the over- or underapplied amount for the month.
A) $7,575 underapplied
B) $35,220 underapplied
C) $7,575 overapplied
D) $35,220 overapplied

Question

Quizplus · Accepted Answer

The predetermined overhead rate is $1,250,000 / 40,000 hours = $31.25 per machine hour. For April, applied overhead is 4,780 hours * $31.25 = $149,375. The actual overhead is $141,800, so the overhead is overapplied by $149,375 - $141,800 = $7,575.

Cavy Company Estimates That the Factory Overhead for the Following