Question

Digger Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year.

Budgeted Actual
Overhead cost $975,000 $950,000
Machine hours 50,000 45,000
Direct labor hours 100,000 92,000

Required:
a. Compute the predetermined overhead rate.
b. Determine the amount of overhead applied for the year.

Answer 1

Predetermined overhead rate = $ 9.75 per direct labor hours

Overhead applied = $897,000

Step-by-step explanation:

Given:

Budgeted Overhead cost = $975,000

Actual Overhead cost = $950,000

Budgeted Machine hours = 50,000

Actual Machine hours = 45,000

Budgeted Direct labor hours = 100,000

Actual Direct labor hours = 92,000

Computation:

(a) Predetermined overhead rate.

Predetermined overhead rate = budgeted overhead cost / budgeted direct labor hours

Predetermined overhead rate = $975,000 / 100,000

Predetermined overhead rate = $ 9.75 per direct labor hours

(b) Amount of overhead applied for the year.

Overhead applied = Actual hours × Predetermined overhead rate

Overhead applied = 92000 × $9.75

Overhead applied = $897,000