Chapter 2, Problem 7.3GAP

To determine

Concept introduction:

Predetermined overhead allocation:

Manufacturing overhead cost is the pool of all indirect costs incurred for production. These are the costs which are not directly traced to the product. Manufacturing costs include indirect material in machine and overheads. These costs are allocated to the products using the predetermined overhead allocation rate. The formula of predetermined overhead allocation rate is as follows:

$\text{Predetermined overhead allocation rate = }\frac{\text{Estimated Manufacturing overhead Cost}}{\text{Allocation base}}$

To calculate:

The predetermined overhead rate, Applied manufacturing overhead, and over or under applied overhead on the basis of machine hours