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

Overhead is applied on the basis of direct labor hours

Required:
a. Compute the predetermined overhead rate. (Round answer to 2 decimal places, e.g. 12.25.)
b. Determine the amount of overhead applied for the year.

Answer 1

a. $19.5 per machine hour

b. $877,500

Step-by-step explanation:

a. The predetermined overhead rate is calculated as;

= Budgeted overhead manufacturing cost / Budgeted machine hours

Given that;

Budgeted overhead manufacturing cost = $975,000

Budgeted machine hours = $50,000

Predetermined overhead rate = $975,000 / $50,000

= $19.5 per machine hour

b. Applied overhead rate is calculated as;

= Predetermined overhead rate × Actual machine hour

Given that predetermined overhead rate = $19.5 per machine hour

Actual machine hour = 45,000

Predetermined overhead rate

= $19.5 × 45,000

= $877,500