Erickson company applies unit-related manufacturing, Ask an Expert

Accounting

Erickson Company applies unit-related manufacturing overhead on the basis of machine hours. The following unit-related overhead data were accumulated by the accounting department:

Estimated Actual
Machine Hours 450,000 600,000
Overhead costs $720,000 $950,000

What is the amount of over- or under applied overhead?

Predetermined Overhead Rate = $720,000 ÷ 450,000 ≈ $1.79

Actual Overhead Costs = $950,000 (given)

Estimated Overhead Costs = $1.79 * 600,000 = $1,074,000

Difference = $1,074,000 - $950,000 = $124,000 Underapplied

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9419060

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