Parsons Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, Parsons Corporation incurred $250,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was overapplied $12,000 for the year. If the predetermined overhead rate was $8.00 per direct labor-hour, how many hours did the Corporation work during the year?
A)31,250 hours
B)30,250 hours
C)32,750 hours
D)29,750 hours

Question

Quizplus · Accepted Answer

The amount of overapplied overhead is added to the actual overhead cost to find the total overhead applied to jobs.

Total overhead applied = Actual overhead + Overapplied overhead 
Total overhead applied = $250,000 + $12,000 
Total overhead applied = $262,000

The predetermined overhead rate is $8.00 per direct labor-hour, therefore:

Predetermined overhead rate = Estimated overhead cost / Estimated direct labor-hours

We can rearrange this formula to find the estimated direct labor-hours:

Estimated direct labor-hours = Estimated overhead cost / Predetermined overhead rate

We know the predetermined overhead rate is $8.00 per direct labor hour, and we have just calculated that the estimated overhead cost is $262,000. Therefore:

Estimated direct labor-hours = $262,000 / $8.00 per direct labor-hour 
Estimated direct labor-hours = 32,750 hours

Therefore, the Corporation worked for 32,750 hours during the year. The correct answer is C.

Parsons Corporation Uses a Predetermined Overhead Rate Based on Direct