Contia Inc.forecasts that total overhead for the current year will be $12,600,000, and total machine hours will be 300,000 hours.However, the actual overhead is $3,250,000, and the actual machine hours are 98,500 hours.If the company uses a predetermined overhead rate based on machine hours for applying overhead, the overhead will be:
A) overapplied by $887,000.
B) underapplied by $887,000.
C) overapplied by $9,350,000.
D) underapplied by $9,350,000.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is $12,600,000 / 300,000 hours = $42 per hour. The actual overhead is $3,250,000, and the actual machine hours are 98,500 hours. So the overhead is overapplied by $42 * (98,500 - 300,000) = $887,000.