Ikerd Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are estimated to total $300,000 for the year, and machine usage is estimated at 125,000 hours. For the year, $322,000 of overhead costs are incurred and 130,000 hours are used. Compute the manufacturing overhead rate and under- or overapplied overhead. Instructions a. Compute the manufacturing overhead rate for the year. b. What is the amount of under- or overapplied overhead at December 31

Ikerd Company

a) The manufacturing overhead rate for the year = $2.40 per machine hour

b) The amount of underapplied overhead is $10,000.

Explanation:

Estimated overhead costs for the year = $300,000

Estimated machine usage = 125,000 hours

Actual overhead costs incurred = $322,000

Actual machine usage = 130,000 hours

Manufacturing overhead rate = Estimated cost/estimated machine usage

= $300,000/125,000 = $2.40 per machine hour

Allocated overhead costs = $2,40 * 130,000 = $312,000

Actual overhead costs incurred                      =  322,000

Underapplied overhead = Actual overhead costs incurred minus the allocated overhead costs ($322,000 - $312,000) = $10,000

88 because 4 plus 4 equals 8. 40 plus 40 equals 80. 80 plus 8 equals 88