Cambridge Manufacturing Company applies manufacturing overhead on the basis of machine hours. At the beginning of the year, the company estimated its total overhead cost to be $325,000 and machine hours to be 25,000. Actual manufacturing overhead and machine hours were $372,000 and 26,000, respectively.

Question

Cambridge Manufacturing Company applies manufacturing overhead on the basis of machine hours. At the beginning of the year, the company estimated its total overhead cost to be $325,000 and machine hours to be 25,000. Actual manufacturing overhead and machine hours were $372,000 and 26,000, respectively.

1. Compute the predetermined overhead rate per machine hour?

2. Compute applied manufacturing overhead?

3. Compute over- or underapplied manufacturing overhead.

Answer 1

To answer these questions, we need to understand a few key concepts and formulas related to manufacturing overhead.

1. The predetermined overhead rate per machine hour is calculated by dividing the estimated total overhead cost by the estimated machine hours.

Predetermined Overhead Rate = Estimated Total Overhead / Estimated Machine Hours

In this case, the estimated total overhead cost is $325,000 and the estimated machine hours are 25,000. Therefore,

Predetermined Overhead Rate = $325,000 / 25,000 = $13 per machine hour

So, the predetermined overhead rate per machine hour is $13.

2. Applied manufacturing overhead is calculated by multiplying the predetermined overhead rate per machine hour by the actual machine hours used.

Applied Manufacturing Overhead = Predetermined Overhead Rate per Machine Hour * Actual Machine Hours

In this case, the predetermined overhead rate per machine hour is $13 and the actual machine hours used are 26,000. Therefore,

Applied Manufacturing Overhead = $13 * 26,000 = $338,000

So, the applied manufacturing overhead is $338,000.

3. To compute over- or underapplied manufacturing overhead, we need to compare the applied manufacturing overhead with the actual manufacturing overhead.

Overapplied Manufacturing Overhead = Applied Manufacturing Overhead - Actual Manufacturing Overhead

In this case, the applied manufacturing overhead is $338,000 and the actual manufacturing overhead is $372,000. Therefore,

Overapplied Manufacturing Overhead = $338,000 - $372,000 = -$34,000

Since the result is negative, it indicates that there is underapplied manufacturing overhead. The company underapplied its manufacturing overhead by $34,000.

So, the answers to the given questions are:

1. The predetermined overhead rate per machine hour is $13.
2. The applied manufacturing overhead is $338,000.
3. The company underapplied its manufacturing overhead by $34,000.