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

Quizplus · Accepted Answer

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-Hours

We can rearrange this formula to solve for the estimated manufacturing overhead:

Estimated Manufacturing Overhead = Predetermined Overhead Rate x Estimated Direct Labor-Hours

We 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 Overhead
Actual Overhead Applied = $143,350 + $18,220
Actual Overhead Applied = $161,570

We 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-Hours
Predetermined Overhead Rate = $161,570 / 11,500
Predetermined Overhead Rate = $14.0426 per direct labor-hour

Finally, 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-Hours
Estimated Manufacturing Overhead = $14.0426 x 11,500
Estimated Manufacturing Overhead = $161,570

Therefore, the estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been $148,350 (Choice C).

Braam Corporation Uses Direct Labor-Hours in Its Predetermined Overhead Rate