The Alphonse Company allocates fixed overhead costs by machine hours and variable overhead costs by direct labor hours. At the beginning of the year the company expects fixed overhead costs to be $600,000 and variable costs to be $800,000. The expected machine hours are 6,000 and the expected direct labor hours are 80,000. The actual fixed overhead costs are $700,000 and the actual variable overhead costs are $750,000. The actual machine hours during the year are 5,500 and the actual direct labor hours are 90,000. a. How much overhead is allocated? b. What is the over/underabsorbed overhead?

Instructions are listed below.

Explanation:

Giving the following information:

The Alphonse Company allocates fixed overhead costs by machine hours and variable overhead costs by direct labor hours. At the beginning of the year, the company expects fixed overhead costs to be $600,000 and variable costs to be $800,000. The expected machine hours are 6,000 and the expected direct labor hours are 80,000.

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

Fixed = 600,000/6,000 = $100 per machine hour

Variable = 800,000/80,000 = $10 per direct labor hour

B) The actual fixed overhead costs are $700,000 and the actual variable overhead costs are $750,000. The actual machine hours during the year are 5,500 and the actual direct labor hours are 90,000.

First, we need to calculate the allocated fixed and variable overhead:

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

Fixed = 100*5,500 = $550,000

Variable = 10*90,000 = $900,000

Total = $1,450,000

Over/under allocation = real MOH - allocated MOH

Over/under allocation = 1,450,000 - 1,450,000 = 0

Fixed = 700,000 - 550,000 = 150,000 overallocated

Variable = 750,000 - 900,000 = 150,000 underallocated