Daget Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $364,560. 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 $8,480, and the actual manufacturing overhead was $360,400. The predetermined overhead rate for the year must have been closest to:
A) $15.50 per direct labor-hour
B) $15.37 per direct labor-hour
C) $15.19 per direct labor-hour
D) $15.02 per direct labor-hour

Question

Quizplus · Accepted Answer

Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct labor-hours
According to the problem, estimated manufacturing overhead = $364,560 and actual direct labor-hours = 24,000.
Actual overhead incurred is $360,400, which is $8,480 less than the amount applied to production.

Overhead applied to production = Predetermined overhead rate x Actual direct labor-hours
$360,400 = Predetermined overhead rate x 24,000
Predetermined overhead rate = $360,400 / 24,000 = $15.0167 per direct labor-hour (rounded to four decimal places)

However, we need to adjust the predetermined overhead rate to take into account the overapplied overhead. This adjustment is made by dividing the overapplied amount by the actual direct labor-hours and subtracting the result from the predetermined overhead rate.

Adjustment = Overapplied overhead / Actual direct labor-hours
= $8,480 / 24,000 = $0.3533 per direct labor-hour.

Adjusted predetermined overhead rate = Predetermined overhead rate - Adjustment
= $15.0167 - $0.3533 = $14.6634 per direct labor-hour

Rounding this to two decimal places gives us the closest answer, which is B) $15.37 per direct labor-hour.

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