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Stranahan Company allocates overhead based on machine hours. Estimated overhead costs for the year total $217,000 and the company estimates that it will use 31,000 machine hours during the year. Actual overhead for the year was $220,000 and the company used 30,000 machine hours. If Job 45 requires 1,000 machine hours, how much overhead will be allocated to Job 45?
a) $7,097
b) $7,333
c) $7,233
d) $7,000

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Answer:

Allocated MOH= $7,000

Explanation:

First, we need to calculate the predetermined overhead rate:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Predetermined manufacturing overhead rate= 217,000 / 31,000

Predetermined manufacturing overhead rate= $7 per machine hour

Job 45:

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

Allocated MOH= 7*1,000

Allocated MOH= $7,000

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