1. The overhead applied to the Verde Baja job is computed as follows:
2005 2004
Estimated studio overhead cost (a) ... $160,000 $160,000
Estimated hours of studio service (b)... 800 1,000
Predetermined overhead rate (a) ÷ (b)... $200 $160
Verde Baja job’s studio hours ... × 40 × 40
Overhead applied to the Verde Baja job ... $8,000 $6,400
Overhead is underapplied for both years as computed below:
Predetermined overhead rate (see above) (a) ... $200 $160
Actual hours of studio service provided (b)... 500 750
Overhead applied (a) × (b)... $100,000 $120,000
Actual studio cost incurred... 160,000 160,000
Underapplied overhead... $ 60,000 $ 40,000
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