Acer Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data for its most recent year of operations. The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company's predetermined overhead rate for the year.
-The overhead for the year was:

Question

Acer Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data for its most recent year of operations.  The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company's predetermined overhead rate for the year.
-The overhead for the year was:

Quizplus · Accepted Answer

To calculate the predetermined overhead rate (POHR), we divide the estimated manufacturing overhead by the estimated machine-hours.
POHR = Estimated manufacturing overhead / Estimated machine-hours
POHR = $136,400 / 10,600 = $12.83 per machine-hour

To calculate the applied overhead, we multiply the POHR by the actual machine-hours used in production.
Applied overhead = POHR x Actual machine-hours
Applied overhead = $12.83 x 11,200 = $143,696

The actual manufacturing overhead for the year is given as $141,252. Therefore, the overhead is underapplied by:
Underapplied overhead = Actual overhead - Applied overhead
Underapplied overhead = $141,252 - $143,696
Underapplied overhead = -$2,444

Since the underapplied amount is negative, it means that there was an overapplication of overhead. Thus, the correct answer is C, and the amount of overhead underapplied is $2,444.

Acer Corporation, Which Applies Manufacturing Overhead on the Basis of Machine-Hours