Problem - Bill Company and ted company both use predetermined overhead rates to apply manufacturing overhead to production. Bill's is based on machine hours and Ted's is based materials cost. Budgeted production and cost data for Bill and Ted are as follows:
Bill Ted
Manufacturing overhead $304,000 $220,000
Units 10,000 20,000
Machine hours 16,000 9,700
Materials cost 155,000 400,000
At the end of the year, Bill company had incurred overhead of $305,000 and had produced 9,800 units using 15,900 machine hours and materials costing $152,000. Ted company had incurred overhead of $216,000 and had produced 20,500 units using 9,750 machine hours and materials costing $395,000
1. Compute the predetermined overhead rates for Bill and Ted?
2. Was overhead over or under applied for each company, and by how much?