Question

Dagger Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $231,750. At the end of the year, actual direct labor-hours for the year were 17,500 hours, manufacturing overhead for the year was underapplied by $12,500, and the actual manufacturing overhead was $227,750. The predetermined overhead rate for the year must have been closest to:

1)$12.96
2)$12.30
3)$13.24
4)$11.43

Answer 1

Predetermined overhead rate of the year = $12.3

Option 2 is correct.

Explanation:

Let P = Predetermined overhead

Actual direct labor hours = 17,500

So, applied overhead = (17,500 *P)

Actual overhead = 227,750

Under applied overhead = 12,500

Applied Overhead = Actual overhead - Under applied overhead

Applied Overhead = 227,750 - 12500

Applied Overhead = 215,250

Using Formula:

215250 = (17,500 *P)

=> P = 215250/17500

P = 12.3

So, Predetermined overhead rate of the year = $12.3

Option 2 is correct.