Biltz Company uses a predetermined overhead rate based on machine hours to allocate manufacturing overhead to jobs. During the year, the company actually incurred manufacturing overhead costs of $582,000 and 135,000 direct labor hours were worked. The company estimated that it would incur $525,000 of manufacturing overhead during the year and that 150,000 direct labor hours would be worked. By how much was manufacturing overhead overallocated or underallocated for the year?

Question

Quizplus · Accepted Answer

The predetermined overhead rate = Estimated total manufacturing overhead costs / Estimated total machine hours 
= $525,000 / 150,000 direct labor hours = $3.50 per direct labor hour
Applied manufacturing overhead = Predetermined overhead rate x Actual direct labor hours worked 
= $3.50 x 135,000 = $472,500
Manufacturing overhead overallocated or underallocated = Actual manufacturing overhead costs - Applied manufacturing overhead 
= $582,000 - $472,500 
= $109,500 underallocated.

Biltz Company Uses a Predetermined Overhead Rate Based on Machine