Privack Corporation has a standard cost system in which it applies overhead to p

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:

Required:

1. Compute the predetermined overhead rate for the year. Be sure to include the total budgeted fixed overhead and the total budgeted variable overhead in the numerator of your rate. (Round your answer to the nearest whole dollar amount.)

2. Compute the amount of overhead that would be applied to the output of the period. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Budgeted variable overhead cost per direct labor-hour $ 4.00 Total budgeted fixed overhead cost per year $ 528,180 Budgeted direct labor-hours (denominator level of activity) 75,455 Actual direct labor-hours 86,000 Standard direct labor-hours allowed for the actual output 81,000

Explanation / Answer

Solution 1:

Budgeted variable overhead = Budgeted labor hours * Budgeted variable overhead cost per direct labor hour

= 75455 * $4 = $301,820

Budgeted fixed overhead = $528,180

Budgeted total overhead = $301,820 + $528,180 = $830,000

Predetermined overhead rate = Budgeted total overhead / Budgeted direct labor hours

= $830,000 / 75455 = $11 per hour

Solution 2:

Variable overhead to be applied = Standard direct labor hours * Pre determined overhead rate

= 81000 * $11 = $891,000

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