Problem 3-21 Predetermined Overhead Rate; Disposition of Underapplied or Overapp

Question

Problem 3-21 Predetermined Overhead Rate; Disposition of Underapplied or Overapplied Overhead [LO1, LO7] Savallas Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year: Computer-hours 80,000 Fixed manufacturing overhead cost $ 1,271,000 Variable manufacturing overhead per computer-hour $ 3.20 During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company

Explanation / Answer

Compute the company’s predetermined overhead rate for the year ($1,273,000 / 88,000) + $3.50 = $17.97

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