Braam Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 11,500 hours. At the end of the year, actual direct labor-hours for the year were 9,700 hours, the actual manufacturing overhead for the year was $143,350, and manufacturing overhead for the year was underapplied by $18,220. The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been: (Do not round your intermediate calculations.)

A) $164,023
B) $125,130
C) $148,350
D) $138,350

Question

Jordan Trimpe · Accepted Answer

Final Answer : C, Explanation :  The predetermined overhead rate can be calculated using the estimated manufacturing overhead and estimated direct labor-hours:Predetermined Overhead Rate = Estimated Manufacturing Overhead / Estimated Direct Labor-HoursWe can rearrange this formula to solve for the estimated manufacturing overhead:Estimated Manufacturing Overhead = Predetermined Overhead Rate x Estimated Direct Labor-HoursWe are given the actual direct labor-hours (9,700), actual manufacturing overhead ($143,350), and underapplied overhead ($18,220). We can use the underapplied overhead to find the actual overhead applied during the year:Actual Overhead Applied = Actual Manufacturing Overhead + Underapplied OverheadActual Overhead Applied = $143,350 + $18,220Actual Overhead Applied = $161,570We can also calculate the predetermined overhead rate using the estimated direct labor-hours and actual overhead applied:Predetermined Overhead Rate = Actual Overhead Applied / Estimated Direct Labor-HoursPredetermined Overhead Rate = $161,570 / 11,500Predetermined Overhead Rate = $14.0426 per direct labor-hourFinally, we can use the predetermined overhead rate and the actual direct labor-hours to find the estimated manufacturing overhead:Estimated Manufacturing Overhead = Predetermined Overhead Rate x Estimated Direct Labor-HoursEstimated Manufacturing Overhead = $14.0426 x 11,500Estimated Manufacturing Overhead = $161,570Therefore, the estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been $148,350 (Choice C).

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