Chapter 4 Exercise 7 7. Overhead application: Working backward The Towson Manufa

Question

Chapter 4 Exercise 7

7. Overhead application: Working backward

The Towson Manufacturing Corporation applies overhead on the basis of machine hours. The following divisional information is presented for your review:

Division A Division B

Actual machine hours 22,500 ?

Estimated machine hours 20,000 ?

Overhead application rate $4.50 $5.00

Actual overhead $110,000 ?

Estimated overhead ? $90,000

Applied overhead ? $86,000

Over- (under-) applied overhead ? $6,500

FIND THE UNKNOWNS FOR EACH OF THE DIVISIONS.

Explanation / Answer

Division A

Estimated overhead =Estimated machine hours*Overhead application rate =20,000*4.5 =$90000

Applied overhead = 22500*4.5 =$101250

Under applied overhead =101250 -110,000 =($8750)

Division B

Actual machine hours =86,000/5 =17200

Estimated machine hours =90,000/5 =18000

Actual overhead =86,000 -6,500 =$79,500

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