Question

Privack Corporation has a standard cost system in which it applies overhead to products based on the standard direct labor-hours allowed for the actual output of the period. Data concerning the most recent year appear below:

Budgeted variable overhead cost per direct labor-hour $2
Total budgeted fixed overhead cost per year $250,000
Budgeted direct labor-hours (denominator level of activity) 40,000
Actual direct labor-hours 39,000
Standard direct labor-hours allowed for the actual output 38,000

Required:
a. Compute the predetermined overhead rate for the year.
b. Determine the amount of overhead that would be applied to the output of the period.

Answer 1

See below

Step-by-step explanation:

A. Predetermined overhead

First, we all calculate total overhead cost at the denominator level

Total overhead cost = total fixed overhead + total variable overhead

= $250,000 + (40,000 × $2)

= $250,000 + $80,000

= $330,000

Predetermined overhead rate = Total overhead cost at the denominator level / Budgeted standard direct labor hour

= $330,000 / 40,000

= $8.25

B. Overhead applied

= Standard direct labor hour allowed for actual output × Predetermined overhead rate

= 38,000 × $8.25

= $313,500