Problem 2B-3 Predetermined Overhead Rate and Capacity [LO2-1, LO2-2, LO2-6] Platinum Tracks, Inc. is a small audio recording studio located in Los Angeles. The company handles work for advertising agencies primarily for radio ads and has a few singers and bands as clients. Platinum Tracks handles all aspects of recording from editing to making a digital master from which CDs can be copied. The competition in the audio recording industry in Los Angeles has always been tough, but it has been getting even tougher over the last several years. The studio has been losing customers to newer studios that are equipped with more up-to-date equipment and that are able to offer very attractive prices and excellent service. Summary data concerning the last two years of operations follow: Estimated hours of studio service Estimated studio overhead cost Actual hours of studio service provided Actual studio overhead cost incurred Hours of studio service at capacity Last Year This Year 1,300 1,050 $195,000 $105,000 1,200 950 $105,000 $105,000 2,100 2,100 The company applies studio overhead to recording jobs on the basis of the hours of studio service provided For example, 45 hours of Studio time were required to record, edit, and master the Verde Baja music CD for a local Latino band. All of the studio overhead cost is fixed, and the actual overhead cost incurred was exactly as estimated at the beginning of the year in last year and this year Required: 1. Platinum Tracks computes its predetermined overhead rate at the beginning of each year based on the estimated studio overhead and the store in conforthes in the h h er show s honor to the Problem 2B-3 Predetermined Overhead Rate and Capacity [LO2-1, LO2-2, LO2-6] Platinum Tracks, Inc. is a small audio recording studio located in Los Angeles. The company handles work for advertising agencies primarily for radio ads and has a few singers and bands as clients. Platinum Tracks handles all aspects of recording from editing to making a digital master from which CDs can be copied. The competition in the audio recording industry in Los Angeles has always been tough, but it has been getting even tougher over the last several years. The studio has been losing customers to newer studios that are equipped with more up-to-date equipment and that are able to offer very attractive prices and excellent service. Summary data concerning the last two years of operations follow: Estimated hours of studio service Estimated studio overhead cost Actual hours of studio service provided Actual studio overhead cost incurred Hours of studio service at capacity Last Year This Year 1,300 1,050 $195,000 $105,000 1,200 950 $105,000 $105,000 2,100 2,100 The company applies studio overhead to recording jobs on the basis of the hours of studio service provided For example, 45 hours of Studio time were required to record, edit, and master the Verde Baja music CD for a local Latino band. All of the studio overhead cost is fixed, and the actual overhead cost incurred was exactly as estimated at the beginning of the year in last year and this year Required: 1. Platinum Tracks computes its predetermined overhead rate at the beginning of each year based on the estimated studio overhead and the store in conforthes in the h h er show s honor to the
