Cambridge Manufacturing Company applies manufacturing overhead on the basis of machine hours. At the beginning of the year, the company estimated its total overhead cost to be $325,000 and machine hours to be 25,000. Actual manufacturing overhead and machine hours were $372,000 and 26,000, respectively. Required: 1. Compute the predetermined overhead rate. 2. Compute applied manufacturing overhead. 3. Compute over- or underapplied manufacturing overhead.

Instructions are below.

Explanation:

Giving the following information:

The estimated total overhead= $325,000

Estimated machine hours= 25,000

Actual manufacturing overhead and machine hours were $372,000 and 26,000, respectively.

First, we need to calculate the predetermined manufacturing overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 325,000/25,000

Predetermined manufacturing overhead rate= $13 per machine-hour

Now, we can allocate overhead:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 13*26,000= $338,000

Finally, we determine the under/over allocation:

Under/over applied overhead= real overhead - allocated overhead

Under/over applied overhead= 372,000 - 338,000= $34,000 underallocated

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