Question

Exercise 8A-3 Applying Overhead in a Standard Costing System [LO8-7] 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: Variable overhead cost per direct labor-hour $2.00 Total fixed overhead cost per year $615,000 Budgeted standard direct labor-hours (denominator level of activity) 102,500 Actual direct labor-hours 85,000 Standard direct labor-hours allowed for the actual output 82,000 Required: 1. Compute the predetermined overhead rate for the year. (Round your answers to the nearest whole number.) 2. Determine the amount of overhead that would be applied to the output of the period. (Round your answers to the nearest whole number.)

Answer 1

Answer to Requirement 1:

Budgeted Overhead Cost = Variable Overhead Cost pet DLH * Budgeted Standard DLHs + Fixed Overhead Cost
Budgeted Overhead Cost = $2.00 * 102,500 + $615,000
Budgeted Overhead Cost = $820,000

Predetermined Overhead Rate = Budgeted Overhead Cost / Budgeted Standard DLHs
Predetermined Overhead Rate = $820,000 / 102,500
Predetermined Overhead Rate = $8.00 per DLH

Answer to Requirement 2:

Overhead Cost applied = Predetermined Overhead Rate * Standard DLHs allowed for Actual Output
Overhead Cost applied = $8.00 * 82,000
Overhead Cost applied = $656,000