Shivers Ice Cream Company estimates its factory overhead costs to be $35,000 and machine hours to be 5,000 for the year.

If the actual hours worked on Jobs 333 and Jobs 334 total 4,980 and actual factory overhead costs are $34,700, what is the amount of either over - or underapplied factory overhead?

a) overapplied $160

b) underapplied $300

c) overapplied $300

d) underapplied $160

The correct answer is A.

Explanation:

Giving the following information:

Estimated factory overhead costs = $35,000

Estimated machine hours = 5,000

The actual hours worked on Jobs 333 and Jobs 334 total 4,980 and actual factory overhead costs are $34,700,

First, we need to calculate the estimated overhead rate:

Estimated manufacturing overhead rate = total estimated overhead costs for the period / total amount of allocation base

Estimated manufacturing overhead rate = 35,000/5,000 = $7 per machine hour

Now, we can allocate overhead based on actual machine hours:

Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

Allocated MOH = 7*4,980 = $34,860

Finally, we determine the over/under allocation:

Under/over applied overhead = real overhead - allocated overhead

Under/over applied overhead = 34,700 - 34,860

Under/over applied overhead = $160 overallocated