Sullivan Company Uses a Predetermined Overhead Rate Based on Machine

question 23

Multiple Choice

Sullivan Company uses a predetermined overhead rate based on machine hours to allocate manufacturing overhead to jobs. The company estimated that it would incur $500,000 of manufacturing overhead during the year and that 200,000 machine hours would be used. During the year, the company actually incurred manufacturing overhead costs of $590,000 and 220,000 machine hours were used.

By how much was manufacturing overhead overallocated or underallocated for the year?

• A) $40,000 underallocated
• B) $40,000 overallocated
• C) $90,000 underallocated
• D) $90,000 overallocated

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Definitions:

Replenishes

Refers to the process of filling up or restoring inventory or supplies to their optimal levels.

Optimal

The most favorable condition or level of efficiency that a system, selection, or outcome can achieve under given constraints.

Collection Float

The time interval between when a payment is deposited and when funds become available in the company’s account, affecting cash flow.

Cheques

Written, dated and signed instruments that direct a bank to pay a specific sum of money to the bearer.