Question

Golden Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 21,700 hours. At the end of the year, actual direct labor-hours for the year were 20,500 hours, the actual manufacturing overhead for the year was $511,440, and manufacturing overhead for the year was underapplied by $23,540.
The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been:

a.$536,065.

b.$487,900.

c.$506,420.

d.$516,460.

Answer 1

Answer:

b.$487,900.

Explanation:

Underapplied overhead occurs when the actual amount of manufacturing overhead incurred is higher than expected.

Since the manufacturing overhead for the year was underapplied by $23,540 in the question, the estimated manufacturing overhead at the beginning of the year used in the predetermined overhead can be calculated just deducting $23,540 form the actual as follows:

Estimated manufacturing overhead at the beginning of the year =  $511,440 - $23,540 = $487,900.