Farrina Manufacturing uses a predetermined overhead application rate of $8 per direct labor hour. A review of the company's accounting records for the year just ended discovered the following:
Underapplied manufacturing overhead: $7,200
Actual manufacturing overhead: $392,000
Budgeted labor hours: 50,000
Simone's actual labor hours worked totaled:
A) 48,100.
B) 49,100.
C) 49,900.
D) 50,900.
E) cannot be determined based on the information presented.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is $8 per direct labor hour. The underapplied overhead is $7,200, which means the applied overhead was $7,200 less than the actual overhead of $392,000. Therefore, the applied overhead was $392,000 - $7,200 = $384,800. Since the overhead application rate is $8 per direct labor hour, the actual labor hours worked can be calculated as $384,800 / $8 per hour = 48,100 hours.

Farrina Manufacturing Uses a Predetermined Overhead Application Rate of $8