Questions: Digger Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year. - Overhead cost: Budgeted 1,378,850, Actual 1,351,850 - Machine hours: Budgeted 56,300, Actual 46,500 - Direct labor hours: Budgeted 109,000, Actual 105,000 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.) Predetermined overhead rate per direct labor hour

Digger Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year. - Overhead cost: Budgeted 1,378,850, Actual 1,351,850 - Machine hours: Budgeted 56,300, Actual 46,500 - Direct labor hours: Budgeted 109,000, Actual 105,000 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.) Predetermined overhead rate per direct labor hour
Transcript text: Digger Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year. \begin{tabular}{lrrr} \hline & \multicolumn{1}{c}{ Budgeted } & \multicolumn{1}{c}{ Actual } \\ \hline Overhead cost & $\$ 1,378,850$ & & $\$ 1,351,850$ \\ Machine hours & 56,300 & 46,500 \\ Direct labor hours & 109,000 & 105,000 \\ \hline \end{tabular} 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.) Predetermined overhead rate \$ per direct labor hour
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Solution

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Solution Steps

To compute the predetermined overhead rate, we need to divide the budgeted overhead cost by the budgeted direct labor hours. This will give us the overhead rate per direct labor hour.

Step 1: Identify Given Data

We are given the following data:

  • Budgeted overhead cost: \$1,378,850
  • Budgeted direct labor hours: 109,000
Step 2: Compute the Predetermined Overhead Rate

The predetermined overhead rate is calculated using the formula: \[ \text{Predetermined Overhead Rate} = \frac{\text{Budgeted Overhead Cost}}{\text{Budgeted Direct Labor Hours}} \] Substituting the given values: \[ \text{Predetermined Overhead Rate} = \frac{1,378,850}{109,000} \approx 12.65 \]

Final Answer

The predetermined overhead rate is: \[ \boxed{12.65 \text{ per direct labor hour}} \]

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