Rist Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The Corporation estimated that it would incur $255,000 in manufacturing overhead during the year and that it would work 100,000 machine-hours. The Corporation actually worked 105,000 machine-hours and incurred $270,000 in manufacturing overhead costs. By how much was manufacturing overhead underapplied or overapplied for the year?

A) $15,000 overapplied
B) $15,000 underapplied
C) $2,250 overapplied
D) $2,250 underapplied

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Manuel Molina · Accepted Answer

Final Answer : D, Explanation :  The predetermined overhead rate is $255,000 / 100,000 machine-hours = $2.55 per machine-hour. The applied overhead is 105,000 machine-hours * $2.55 = $267,750. The actual overhead was $270,000. Therefore, manufacturing overhead was underapplied by $270,000 - $267,750 = $2,250.

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