Cavy Company estimates that the factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs were 4,780. If the actual factory overhead totaled $141,800, determine the over- or underapplied amount for the month

Over/under allocation= $7,575 overallocated

Explanation:

Giving the following information:

The estimated factory overhead= $1,250,000.

Estimated machine-labor hours= 40,000 hours.

The machine hours for April for all of the jobs were 4,780. If the actual factory overhead totaled $141,800.

I will divide the answer in 3 steps. First, we need to calculate the estimated overhead rate. Then, we allocate overhead based on actual machine-hours. Finally, we determine the over/under allocation:

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=  1,250,000/40,000= $31.25 per machine hour

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

Allocated MOH= 31.25*4,780= $149,375

Finally, we calculate the under/over allocation:

Over/under allocation= real MOH - allocated MOH

Over/under allocation= 141,800 - 149,375= $7,575 overallocated

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