At the beginning of the year, manufacturing overhead for the year was estimated to be $994,125. At the end of the year, actual direct labor-hours for the year were 36,370 hours, the actual manufacturing overhead for the year was $940,000, and manufacturing overhead for the year was overapplied by $60,175. If the predetermined overhead rate is based on direct labor-hours, then the estimated direct labor-hours at the beginning of the year used in the predetermined overhead rate must have been: (Do not round intermediate calculations.)
A) 34,182 direct labor-hours
B) 36,150 direct labor-hours
C) 36,370 direct labor-hours
D) 31,994 direct labor-hours

Question

Quizplus · Accepted Answer

The predetermined overhead rate based on direct labor-hours can be calculated as follows:

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

Using the given information, we have:

Predetermined Overhead Rate = $994,125 ÷ X direct labor-hours

where X is the estimated direct labor-hours at the beginning of the year.

We can rearrange the formula to solve for X:

X = Estimated Manufacturing Overhead ÷ Predetermined Overhead Rate

X = $994,125 ÷ ($994,125 ÷ Estimated Direct Labor-Hours)

At the end of the year, actual direct labor-hours were 36,370 hours, and the predetermined overhead rate was:

Predetermined Overhead Rate = $994,125 ÷ 36,370 direct labor-hours = $27.36 per direct labor-hour

Therefore, we can calculate the estimated direct labor-hours at the beginning of the year as:

X = $994,125 ÷ $27.36 per direct labor-hour = 36,150 direct labor-hours

Hence, the best choice is B) 36,150 direct labor-hours.

At the Beginning of the Year, Manufacturing Overhead for the Year