Pacific, Inc. is a technology consulting firm focused on website development and
ID: 2448911 • Letter: P
Question
Pacific, Inc. is a technology consulting firm focused on website development and integration of Internet business applications. The company has computed a predetermined overhead allocation rate of $155 per direct labor hour The president of Pacific suspects that her allocation of indirect costs could be giving misleading results, so she decides to develop an ABC system. She identifies three activities: documentation preparation, information technology support, and training. She figures that documentation costs are driven by the number of pages, information technology support costs are driven by the number of software applications used, and training costs are driven by the number of direct labor hours worked. Estimates of the costs and quantities of the allocation bases follow: (Click the icon to view the estimates.) Compute the predetermined overhead allocation rate for each activity. Begin by selecting the formula to calculate the predetermined overhead (OH) allocation rate. Then enter the amounts to compute the allocation rate for each activity. (Round your answers to the nearest whole dollar. Abbreviation used: IT information technology.)Explanation / Answer
Predetermined overhead rate for each of the three activities should be computed by dividing the estimated cost for that activity by the estimated quantity of allocation base.
Predetrmined overhead rate for document preparation = $102,000 / 3,000 pages
= $34 per page
Predetermined overhead rate for information technology support = $156,000 / 780 applications
= $200 per application
Predetermined overhead rate for training = $517,000 / 4,700 hours
= $110 per hour
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