Question

Karvel Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. For the month of August, Karvel estimated total manufacturing overhead costs at $300,000 and total machine-hours at 75,000 hours. Actual results for the period were manufacturing overhead costs of $290,000 and 75,000 machine-hours. As a result, Karvel would have: Multiple Choice applied more overhead to Work in Process than the actual amount of overhead cost for the year. applied less overhead to Work in Process than the actual amount of overhead cost for the year. applied an amount of overhead to Work in Process that was equal to the actual amount of overhead. found it necessary to recalculate the predetermined overhead rate.

Answer 1

Answer:

Karvel would have applied more overhead to Work in Process than the actual amount of overhead cost for the year.

Option A is correct.

Explanation:lj;kxzx

Predetermined overhead rate = Estimated overhead cost/estimated machine hours.

Therefore, the  overhead rate of Karvel Corporation = $300,000 /75,000 = $4.00 per hour.

Now, we need to apply the Predetermined overhead rate on the actual machine hours.

At 75,000 machine-hours, the amount that would have been applied = 75,000*4 = $300,000.

Over/under- applied cost = Actual overhead cost - applied overhead cost.

Actual overhead cost = $290,000.

Applied  overhead cost = $300,000

Under- applied cost = $290,000 - $300,000 = -$10,000.

Thus, Karvel Corporation applied more overhead to Work in Process than the actual amount of overhead cost for the year.