Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 17

Estimate Machine-Hours Worked from Overhead Data

Sydney Corporation estimated that machine-hours for the year would be 20,000 hours and overhead (all fixed) would be $80,000. Sydney applies its overhead on the basis of machine-hours. During the year, all overhead costs were exactly as planned ($80,000). There was $11,000 in overapplied overhead.

Required

How many machine-hours were worked during the period? Show computations.

Step 1 of 4

Overhead costs:

Overhead costs are those costs that cannot be directly traced to a product/service/activity, but are still essential for production and running of the business.

Examples are: Factory rent, factory insurance premium, salaries of managers involved in production etc.