Chipata Corporation applies manufacturing overhead to jobs on the basis of machine-hours. Chipata estimated 25,000 machine-hours and $10,000 of manufacturing overhead cost for the year. During the year, Chipata incurred 26,200 machine-hours and $11,300 of manufacturing overhead. What was Chipata's underapplied or overapplied overhead for the year?
A) $480 overapplied
B) $820 underapplied
C) $1,300 overapplied
D) $1,300 underapplied

Question

Quizplus · Accepted Answer

Chipata's predetermined overhead rate is calculated as estimated overhead cost divided by estimated machine-hours, which is $10,000 / 25,000 = $0.40 per machine-hour. The applied overhead for the year is the predetermined rate multiplied by the actual machine-hours, which is $0.40 * 26,200 = $10,480. The actual overhead was $11,300, so the difference is $11,300 - $10,480 = $820 underapplied.

Chipata Corporation Applies Manufacturing Overhead to Jobs on the Basis