Exercise 4-36 (Algo) Application of Overhead [LO 4-4, 4-6]
Norton Associates is an advertising agency in Austin, Texas. The company’s controller estimated that it would incur $616,000 in overhead costs for the current
year. Because the overhead costs of each project change in direct proportion to the amount of direct professional hours incurred, the controller decided that
overhead should be applied on the basis of professional hours. The controller estimated 22,000 professional hours for the year. During October, Norton incurred
the following costs to make a 20-second TV commercial for Central Texas Bank:
Direct materials $ 48,000
Direct professional hours ($55/hour) 1,700
The industry customarily bills customers at 150% of total cost.
Required:
1. Compute the predetermined overhead rate.
2. What is the total amount of the bill that Norton will send Central Texas Bank?
Predetermined overhead rate per professional hour
Total billing for Central Texas Bank
References
Worksheet Exercise 4-36 (Algo) Application of