The Hamilton Company planned to produce 150,000 units during the current year. At that production volume, the company estimated that its overhead costs would amount to $637,500.Required:1) Calculate the predetermined overhead rate per unit based on expected production.2) Assume that actual output totaled only 145,000 units but the actual overhead cost incurred was $637,500, as expected. How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied during the period? (Be sure to indicate whether over- or underapplied.)3) Assume that actual output totaled 150,000 units, as expected, but actual overhead costs amounted to $600,000. How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied

Question

during the period? (Be sure to indicate whether over- or underapplied.)4) Summarize the conditions that lead to over- or underapplied overhead.

What will be an ideal response?

Answer 1

Answers will vary

1) Predetermined overhead rate = $637,500 ÷ 150,000 = $4.25 per unit.

2) Allocated overhead = $4.25 × 145,000 = $616,250. Overhead was underapplied by $21,250 ($637,500 ? $616,250).

3) Allocated overhead = $4.25 × 150,000 = $637,500. Overhead was overapplied by $37,500 ($600,000 ? $637,500).

4) Overhead will be under- or overapplied whenever the firm operates at a volume level different from that used to compute the predetermined overhead rate and/or incurs an actual amount of overhead cost that is different from that estimated.