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

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