Keystone Company applies overhead on the basis of machine hours. Given the following data, compute the amount of overhead under- or over applied for the period.
Estimated annual overhead cost $2,250,000
Actual annual overhead cost $2,227,500
Estimated machine hours 300,000
Actual machine hours 295,000
A) $1,120,000 applied and $25,000 overapplied
B) $1,200,000 applied and $25,000 overapplied
C) $1,120,000 applied and $25,000 underapplied
D) $1,145,000 applied and neither under- nor overapplied

The amount of overhead under-or over applied for the period

Applied

Over applied

Explanation:

Estimated annual overhead cost

Actual annual overhead cost

Estimated machine hours

Actual machine hours

Predetermined overhead rate=Estimated annual overhead cost / Estimated machine hours

per machine hour

Overhead applied=Actual machine hours/Overhead rate

Over/under allocation= Actual annual overhead cost - Overhead applied

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