Mahler, Inc

question 23

Multiple Choice

Mahler, Inc., applies manufacturing overhead at the rate of $40 per machine hour. Budgeted machine hours for the current period were anticipated to be 120,000; however, a lengthy strike resulted in actual machine hours being worked of only 90,000. Budgeted and actual manufacturing overhead figures for the year were $4,800,000 and $4,180,000, respectively. On the basis of this information, the company's year-end overhead was:

• A) overapplied by $580,000.
• B) underapplied by $580,000.
• C) overapplied by $1,200,000.
• D) underapplied by $1,200,000.
• E) underapplied by $900,000.

---

Definitions:

Explicit Costs

Refers to direct monetary expenses businesses incur in their operations, such as wages, rent, and materials.

Normal Profit

Normal profit is the minimum amount of profit needed for a company to remain competitive in the market, covering all its opportunity costs.

Normal Profits

The level of profit that business owners consider satisfactory or "normal", essentially covering both explicit and implicit costs, including a normal rate of return on investment.

Accounting Profits

The total revenue of a business minus the explicit costs; it's the profit figure calculated according to generally accepted accounting principles.