Rumington Popcorn uses a standard cost system and applies overhead on a per unit basis.The company estimated that 30,000 units would be produced in 2017 and uses this quantity to establish its standard overhead cost per unit.The cost formula for overhead costs used to develop the standard overhead cost per unit was:
Overhead = $120,000 + $6 per unit
During the year, actual overhead cost was $340,000.Actual units produced were 32,000.How much is the amount of under or over applied overhead for 2017?
A)$20,000 overapplied
B)$20,000 underapplied
C)$28,000 overapplied
D)$28,000 underapplied

Question

Quizplus · Accepted Answer

The standard overhead cost per unit is calculated as ($120,000 + $6 * 30,000) / 30,000 = $10 per unit. For 32,000 units, the applied overhead is 32,000 * $10 = $320,000. The actual overhead cost was $340,000, resulting in $340,000 - $320,000 = $20,000 underapplied overhead.

Rumington Popcorn Uses a Standard Cost System and Applies Overhead