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Waterway Industries applies overhead on the basis of machine hours. Given the following data, compute overhead applied and the under- or overapplication of overhead for the period:Estimated annual overhead cost $1,200,000Actual annual overhead cost $1,150,000Estimated machine hours 300,000Actual machine hours 280,000Question 5 options:$1,120,000 applied and $30,000 underapplied.$1,120,000 applied and $30,000 overapplied.$1,150,000 applied and neither under- nor overapplied.$1,200,000 applied and $30,000 overapplied.

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Answer:

$30,000 under applied

Explanation:

For computing the over applied or under applied, first, we have to compute the predetermined overhead rate. The formula is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated machine hours)

= $1,200,000 ÷ 300,000 hours

= $4

Now we have to find the applied overhead which equal to

= Actual machine hours × predetermined overhead rate

= 280,000 × $4

= $1,120,000

So, the ending overhead equals to

= Actual manufacturing overhead - applied overhead

= $1,150,000 - $1,120,000

= $30,000 under applied

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