Baka Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $239,700 and 4,700 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $242,000 and actual direct labor-hours were 4,600.The predetermined overhead rate for the year was closest to:
A) $52.61
B) $49.91
C) $51.00
D) $51.49

Question

Quizplus · Accepted Answer

The predetermined overhead rate is calculated by dividing the total estimated overhead by the estimated direct labor hours:
$239,700 / 4,700 = $51.00 per direct labor hour

To determine whether the rate was over- or under-applied, we need to compare how much overhead was actually incurred to how much overhead was applied to the products.

Actual overhead is $242,000, and the predetermined overhead rate was $51.00 per direct labor hour.

Actual direct labor hours are 4,600, so the amount of overhead that should have been applied is:

4,600 x $51.00 = $234,600

To find the amount of over- or under-applied overhead, we subtract the amount of applied overhead from the actual overhead:

$242,000 - $234,600 = $7,400 overapplied

Therefore, the predetermined overhead rate was $51.00 per direct labor hour, and overhead was overapplied by $7,400.

Baka Corporation Applies Manufacturing Overhead on the Basis of Direct