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Gary King believes that Waterway Manufacturing Company should apply manufacturing overhead based on machine hours. Waterway Manufacturing Company, a small manufacturer of appliance parts, has just completed its first year of operations. The

company's controller, Gary King, has been reviewing the results for the year and is concerned about the application of factory

overhead. King is using the following information to assess operations.

Waterway uses several machines with a combined cost of $$2,250,000$ and no residual value. Each machine has an output of $6$

units of product per hour and a useful life of $22,000$ machine hours.

Selected actual data on Waterway's operations for the year just ended are as follows:

Total factory overhead is applied based on direct labor cost using a predetermined plant$-$wide rate.

Budgeted activity for the year included $10$ employees each working $1,800$ productive hours per year to produce $607,500$ units

of product. Because the machines are highly automated, each employee can operate two to four machines simultaneously.

Normal activity is for each employee to operate three machines. Machine operators are paid $$15$ per hour. Overhead was

budgeted at $$810,000.$

$($a$)$

Based on Waterway Manufacturing Company's actual operations over the past year, was manufacturing overhead underapplied

or overapplied? By how much? $($Round OH rate to $0$ decimal places, e$.$g$.52\%.)$

Predetermined overhead rate

$\%$ of direct labor cost

Calculate the predetermined overhead rate using that activity base. $($Round OH rate to $2$ decimal places, e$.$g$.52\mathrm{.}75.)$

Predetermined overhead rate

$

$/$ machine hour

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