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Calculator Cavy Company estimates that the factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs were 4,780. If the actual factory overhead totaled $141,800, determine the over- or underapplied amount for the month.

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Answer:

Over applied overheads = $7,575

Explanation:

In the given instance:

Rate of predetermined overhead per hour = [tex]\frac{1,250,000}{40,000} = 31.25[/tex]

That means rate = $31.25 per hour

Actual working hours = 4,780

Budgeted overheads accordingly = 4,780 [tex]\times[/tex] $31.25 = $149,375

Whereas, actual incurred overheads = $141,800

Therefore overheads over applied = Budgeted - Actual = $149,375 - $141,800 = $7,575

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