Question

question 9
elwood company applies overhead based on machine hours. at the beginning of the year, elwood estimates overhead to be $760,000, machine hours to be 200,000, and direct labor hours to be 40,000. during february, elwood has 3,750 direct labor - hours and 16,000 machine hours.
if the actual overhead for february is $58,300, what is the overhead variance, and is it over - or underapplied?
(a) $2,500 overapplied
(b) $2,500 underapplied
(c) $12,950 underapplied
(d) $12,950 overapplied
question 10
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Explanation:

Step1: Calculate the predetermined overhead rate

The formula for the predetermined overhead rate is $\text{Predetermined overhead rate}=\frac{\text{Estimated overhead}}{\text{Estimated machine - hours}}$. Given that estimated overhead is $\$760,000$ and estimated machine - hours are $200,000$. So, $\text{Predetermined overhead rate}=\frac{760000}{200000}=\$3.8$ per machine - hour.

Step2: Calculate the applied overhead in February

The applied overhead is calculated by multiplying the predetermined overhead rate by the actual machine - hours in February. Actual machine - hours in February are $16,000$. So, $\text{Applied overhead}=3.8\times16000 = \$60,800$.

Step3: Calculate the overhead variance

The formula for overhead variance is $\text{Overhead variance}=\text{Applied overhead}-\text{Actual overhead}$. Actual overhead is $\$58,300$. So, $\text{Overhead variance}=60800 - 58300=\$2,500$. Since the applied overhead ($\$60,800$) is greater than the actual overhead ($\$58,300$), it is over - applied.

Answer:

A. $\$2,500$ overapplied