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

Underallocation = $2,250

Explanation:

Giving the following information:

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 worked 105,000 machine-hours and incurred $270,000 in manufacturing overhead costs.

To calculate the under/over application we need to calculate the estimated overhead rate. Then applied overhead to the period and compare it to the actual overhead incurred.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

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

Estimated manufacturing overhead rate = 255,000/100,000 = $2.55 per machine hour

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

Allocated MOH = 2.55*105,000 = $267,750

Now, we can calculate the under/over allocation:

Over/under allocation = real MOH - allocated MOH = 270,000 - 267,750 = $2,250 underallocated