Dagger Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $423,870. At the end of the year, actual direct labor-hours for the year were 19,400 hours, manufacturing overhead for the year was underapplied by $5,650, and the actual manufacturing overhead was $418,870. The predetermined overhead rate for the year must have been closest to:
A)$21.59
B)$20.76
C)$21.30
D)$21.85

Question

Quizplus · Accepted Answer

Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated direct labor-hours
We already know the estimated manufacturing overhead cost is $423,870
Now, we need to calculate estimated direct labor-hours.
We can use the following formula to calculate underapplied or overapplied manufacturing overhead cost:
Actual manufacturing overhead cost – (Predetermined overhead rate × Actual direct labor-hours)
$5,650 = $418,870 – (Predetermined overhead rate × 19,400)
Predetermined overhead rate = ($418,870 – $5,650) / 19,400 = $413,220 / 19,400 = $21.30 (rounded to two decimal places)

Therefore, the best choice is (C) $21.30.

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