The following information is provided by the Sutton Corporation for the year: $$\begin{array} { l r }
\text { Actual overhead } & \$ 450,000 \
\text { Actual machine hours worked } & 25,000 \
\text { Budgeted machine hours } & 27,500 \
\text { Applied overhead } & \$ 487,500
\end{array}$$
If normal costing is used, budgeted overhead used to calculate the predetermined rate would be
A)$443,250.
B)$450,000.
C)$487,500.
D)$536,250.

Question

The following information is provided by the Sutton Corporation for the year: $$\begin{array} { l r } 
\text { Actual overhead } & \$ 450,000 \
\text { Actual machine hours worked } & 25,000 \
\text { Budgeted machine hours } & 27,500 \
\text { Applied overhead } & \$ 487,500
\end{array}$$
If normal costing is used, budgeted overhead used to calculate the predetermined rate would be
A)$443,250.
B)$450,000.
C)$487,500.
D)$536,250.

Quizplus · Accepted Answer

The predetermined overhead rate under normal costing is based on budgeted amounts rather than actual amounts. Since the applied overhead is $487,500 and is based on the predetermined rate, we need to find the budgeted overhead that would result in this applied overhead given the budgeted machine hours. The calculation is as follows: Applied overhead = Predetermined rate x Actual machine hours. To find the budgeted overhead, we use the budgeted machine hours: $487,500 = Budgeted overhead / Budgeted machine hours = Budgeted overhead / 27,500. Solving for Budgeted overhead gives us $487,500 / (25,000 / 27,500) = $536,250.

The Following Information Is Provided by the Sutton Corporation for the Year