Daget Corporation uses direct labor-hours in its predetermined overhead rate.At the beginning of the year, the total estimated manufacturing overhead was $364,140.At the end of the year, actual direct labor-hours for the year were 24,000 hours, manufacturing overhead for the year was overapplied by $8,060, and the actual manufacturing overhead was $359,140.The predetermined overhead rate for the year must have been closest to:

A) $15.43 per direct labor-hour
B) $15.30 per direct labor-hour
C) $15.17 per direct labor-hour
D) $14.96 per direct labor-hour

Question

Mariela Contreras · Accepted Answer

Final Answer : B, Explanation :  First, we need to determine the amount of manufacturing overhead applied during the year by using the predetermined overhead rate:Predetermined overhead rate = Estimated manufacturing overhead for the year / Estimated total direct labor-hours for the yearPredetermined overhead rate = $364,140 / Total estimated direct labor-hours (unknown)Next, we can use the actual direct labor-hours for the year to calculate the total amount of overhead that should have been applied:Applied manufacturing overhead = Actual direct labor-hours for the year x Predetermined overhead rateApplied manufacturing overhead = 24,000 hours x Predetermined overhead rateWe know that actual manufacturing overhead for the year was $359,140 and that manufacturing overhead was overapplied by $8,060, so we can set up the following equation:Actual manufacturing overhead = Applied manufacturing overhead + Overapplied manufacturing overhead$359,140 = 24,000 hours x Predetermined overhead rate + $8,060Solving for the predetermined overhead rate, we get:Predetermined overhead rate = ($359,140 - $8,060) / 24,000 hoursPredetermined overhead rate = $351,080 / 24,000 hoursPredetermined overhead rate = $14.62 per direct labor-hourTherefore, the closest answer choice to the predetermined overhead rate is B) $15.30 per direct labor-hour. Underapplied (overapplied)manufacturing overhead = Actual manufacturing overhead - Manufacturing overhead appliedManufacturing overhead applied = Actual manufacturing overhead + Overapplied manufacturing overhead= $359,140 + $8,060= $367,200Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $367,200 ÷ 24,000 direct labor-hours = $15.30 per direct labor-hour

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