Golden Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 21,600 hours. At the end of the year, actual direct labor-hours for the year were 20,400 hours, the actual manufacturing overhead for the year was $506,920, and manufacturing overhead for the year was underapplied by $23,440. The estimated manufacturing overhead at the beginning of the year used to calculate the predetermined overhead rate must have been:
A) $501,920.
B) $531,445.
C) $483,480.
D) $511,920.

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated using estimated overhead and estimated direct labor-hours. The underapplied overhead of $23,440 means actual overhead exceeded applied overhead. Applied overhead = Predetermined rate x Actual hours = (Estimated overhead / 21,600) x 20,400. Solving for estimated overhead gives $511,920.

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