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Digger Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year.
Budgeted Actual Overhead cost $975,000 $950,000
Machine hours 50,000 45,000
Direct labor hours 100,000 92,000
Overhead is applied on the basis of direct labor hours.
A) Compute the predetermined overhead rate. (Round answer to 2 decimal places, e.g. 12.25.) Pre-determined overhead rate = budgeted overhead / budgeted direct labor hours
= 975,000 / 100,000
= $9.75 per direct labor hoursB) Determine the amount of overhead applied for the year.?overhead applied = actual hours *overhead rate = 92000 * 9.75
= $897,000C) Explain how an activity-based costing system might differ in terms of computing a predetermined overhead rate.

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Answer:

A. $9.75 per direct labor hours

B.$897,000

C. Activity-based costing which is a costing system or costing method tend to have more activities than predetermined overhead.

Explanation:

A) Computation for the predetermined overhead rate

Using this formula

Pre-determined overhead rate = budgeted overhead / budgeted direct labor hours

Let plug in the formula

Pre-determined overhead rate = 975,000 / 100,000

Pre-determined overhead rate = $9.75 per direct labor hours

Therefore Pre-determined overhead rate is $9.75 per direct labor hours

B) Calculation to Determine the amount of overhead applied

Using this formula

Overhead applied = actual hours *overhead rate

Let plug in the formula

Overhead applied = 92,000 * 9.75

Overhead applied = $897,000

Therefore the Overhead applied is $897,000

C) ACTIVITY BASED costing system differ when computing a predetermined overhead in the following ways:

Activity-based costing which is a costing system or costing method tend to have more activities than predetermined overhead and such activities include:

Number of machine hours

Cost drivers such as machine set among others.

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