Question

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		81,000
Fixed manufacturing overhead cost	$	1,280,000
Variable manufacturing overhead per computer-hour	$	3.60

During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year:

   

Computer-hours		50,000
Manufacturing overhead cost	$	1,038,000
Inventories at year-end:
Raw materials	$	440,000
Work in process	$	130,000
Finished goods	$	1,030,000
Cost of goods sold	$	2,710,000

Required:  

1. Compute the company’s predetermined overhead rate for the year. (Round predetermined overhead rate to 2 decimal places.)

2. Compute the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places.)

Answer 1