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:

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	$	3.50
Total budgeted fixed overhead cost per year	$	565,908
Budgeted direct labor-hours (denominator level of activity)		75,455
Actual direct labor-hours		84,000
Standard direct labor-hours allowed for the actual output		82,000

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.

Explanation

1.

The total overhead cost at the denominator level of activity must be determined before the predetermined overhead rate can be computed.

Total fixed overhead cost per year	$	565,908
Total variable overhead cost ($3.50 per DLH × 75,455 DLHs)		264,092
Total overhead cost at the denominator level of activity	$	830,000

Predetermined overhead rate	=	Overhead at the denominator level of activity
		Denominator level of activity
	=	$830,000	= $11 per DLH
		75,455 DLHs

2.

Standard direct labor-hours allowed for the actual output (a)		82,000	DLHs
Predetermined overhead rate (b)	$	11.00	per DLH
Overhead applied (a) × (b)	$	902,000

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