2. If the predetermined overhead rate is based on the hours of studio ser-
vice at capacity, the computations would be:
2005 2004
Estimated studio overhead cost (a) ... $160,000 $160,000
Hours of studio service at capacity (b) ... 1,600 1,600
Predetermined overhead rate (a) ÷ (b)... $100 $100
Verde Baja job’s studio hours ... × 40 × 40
Overhead applied to the Verde Baja job ... $4,000 $4,000
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
Solutions Manual, Chapter 3 117
Problem 3-28 (continued)
Overhead is underapplied for both years under this method as well:
Predetermined overhead rate (see above) (a) ... $100 $100
Actual hours of studio service provided (b)... 500 750
Overhead applied (a) × (b)... $ 50,000 $ 75,000
Actual studio cost incurred... 160,000 160,000
Underapplied overhead... $110,000 $ 85,000
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