Anselmo’s Kwik Print provides a variety of photocopying and printing services. On June 5, Anselmo invested in some computer-aided photography equipment that enables customers to reproduce a picture or illustration, input it digitally into the computer, enter text into the computer, and then print out a 4-color professional quality brochure.

Prior to the purchase of this equipment, Kwik Print’s overhead averaged $35,000 per year. After the installation of the new equipment, the total overhead increased to

$85,000 per year. Kwik Print has always costed jobs on the basis of actual materials and labor plus overhead assigned using a predetermined overhead rate based on direct labor hours. Budgeted direct labor hours for the year are 5,000, and the wage rate is $6 per hour.

Required:

1. What was the predetermined overhead rate prior to the purchase of the new equipment?

2. What was the predetermined overhead rate after the new equipment was purchased?

3. Suppose Jim Hargrove brought in several items he wanted photocopied. The job required 100 sheets of paper at $0.015 each and 12 minutes of direct labor time.

What would have been the cost of Jim’s job on May 20? On June 20?

4. Suppose that Anselmo decides to calculate two overhead rates, one for the photocopying area based on direct labor hours as before, and one for the computeraided printing area based on machine time. Estimated overhead applicable to the computer-aided printing area is $50,000, and forecasted usage of the machines is 2,000 hours. What are the two overhead rates? Which overhead rate system is better—one rate or two?