The Cope Company Had an Over-Absorbed Overhead Balance at Year-End

Essay

The Cope Company had an over-absorbed overhead balance at year-end. The firm wrote off one-third of it to Cost of Goods Sold, thereby raising net income by $100,000, and the remainder was charged to inventory accounts. Overhead is allocated to products using direct labor dollars. The firm uses a flexible budget to calculate its overhead rate. Before the year began, the variable overhead rate and budgeted volume were estimated to be $7.00 per direct labor dollar and $1 million, respectively. Actual overhead incurred for the year was $9.7 million, and actual direct labor cost was $1,250,000.
Required:
What budgeted fixed overhead amount did the Cope Company use in calculating the overhead rate?