Question

At the beginning of the year, manufacturing overhead for the year was estimated to be $285,690. At the end of the year, actual direct labor-hours for the year were 30,500 hours, the actual manufacturing overhead for the year was $373,620, and manufacturing overhead for the year was overapplied by $18,000. If the predetermined overhead rate is based on direct labor-hours, then the estimated direct labor-hours at the beginning of the year used to calculate the predetermined overhead rate was:

Answer 1

Answer:

the estimated direct labor-hours at the beginning of the year used to calculate the predetermined overhead rate was 22,250 hours

Explanation:

Manufacturing overheads are allocated to production on a predetermined basis as no business can wait to know its profit to properly allocate costs to the products sold.

It is usually based on a certain predetermined activity level (usually direct labour hours) which is then coated into the product material and labor costs to determine its manufacturing costs.

We are told the Actual overhead was over applied by $18,000, and the Actual Manufacturing overhead was $373,620.

This implies the Overhead charged to production was;

$373,620 + $18,000 = $391,620

At an activity level of 30,500 direct labor hours.

The Predetermine direct labour rate is:

$391,620 / 30,500 = $12.84

And this implies the direct labor hours at the beginning of the year is

$285,690 divided by $12.84 = 22,250 hours