Question

Instant Access Services Inc. leases access to high-speed computers to small businesses. It provides the following information for the year:

Budgeted Actual
Overhead cost $2,100,000 $1,900,000
Computer hours 100,000 90,000
Direct labor hours 200,000 180,000
Overhead is applied on the basis of computer hours.
Instructions
a. Compute the predetermined overhead rate.
b. Determine the amount of overhead applied for the year.

Answer 1

Predetermined overhead rate= $21 per hour

Applied overhead= $1,890,000

Step-by-step explanation:

Overhead absorption rate (OAR)= Budgeted Overhead/Budgeted computer hours

= $2,100,000/100,000 computer hours= $21 per hour

Predetermined overhead rate= $21 per hour

Applied overhead= OAR × Actual hours

Overhead applied = $21 per hour × 90,000 = $1,890,000

Applied overhead= $1,890,000