Scottso Corporation applies overhead using a normal costing approach based upon machine-hours.Budgeted factory overhead was $232,750,budgeted machine-hours were 17,500.Actual factory overhead was $227,830,actual machine-hours were 16,150.How much is the Over- or underapplied overhead?

Question

Quizplus · Accepted Answer

To determine the over- or underapplied overhead, we need to compare the actual overhead incurred to the overhead applied based on the budgeted rate. 
Overhead applied = Budgeted overhead rate x Actual machine-hours 
= ($232,750 / 17,500) x 16,150 
= $210,165 
Actual overhead - overhead applied = $227,830 - $210,165 = $17,665 
Since the actual overhead is higher than the overhead applied, it means the company underapplied overhead by $17,665. Therefore, the correct answer is B, $13,035 underapplied (which is the closest option).

Scottso Corporation Applies Overhead Using a Normal Costing Approach Based