The Alphonse Company allocates overhead costs by machine hours. At the beginning

Question

The Alphonse Company allocates overhead costs by machine hours. At the beginning of the year the company expects fixed overhead costs to be $60,000 and variable overhead costs to be $80,000. The expected machine hours are 6,000 and the expected direct labor hours are 80,000. The actual fixed overhead costs are $70,000 and the actual variable overhead costs are $85,000. The actual machine hours during the year are 6,500 and the actual direct labor hours are 90,000.

Required:

a.      How much overhead is allocated?

b.      What is the over/underabsorbed overhead?

Explanation / Answer

Expected Fixed Overhead                     60,000.00 Expected Machine hours                       6,000.00 Overhead rate per hour(60000/6000)                             10.00 Actual Machine hours                       6,500.00 Overhead Applied or allocated(6500*10)                     65,000.00 Actual Overhead                     70,000.00 Underapplied Overhead                       5,000.00 Since actual overhead is more than Applied overhead, overhead are underapplied

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