Question

At the beginning of the year, manufacturing overhead for the year was estimated to be $802,125. At the end of the year, actual direct labor-hours for the year were 36,270 hours, the actual manufacturing overhead for the year was $775,000, and manufacturing overhead for the year was overapplied by $41,075. If the predetermined overhead rate is based on direct labor-hours, then the estimated direct labor-hours at the beginning of the year used in the predetermined overhead rate must have been: (Do not round intermediate calculation.)

a) 34,444 direct labor-hours
b) 35,650 direct labor-hours
c) 36,270 direct labor-hours
d) 32,619 direct labor-hours

Answer 1

The estimated direct labor-hours at the beginning of the year used to determine the predetermined overhead rate were 35,650 hours, as this is the amount that, when multiplied by the predetermined overhead rate, equals the estimated manufacturing overhead.

Step-by-step explanation:

The student is asking about finding the estimated direct labor-hours used to determine the predetermined overhead rate in cost accounting.

We are given that the estimated manufacturing overhead is $802,125, the actual manufacturing overhead is $775,000, and the overhead was overapplied by $41,075. To find the estimated direct labor-hours, we need to calculate the predetermined overhead rate and then use it to find the estimated hours.

First, determine the applied manufacturing overhead, which is actual overhead plus overapplied amount: $775,000 + $41,075 = $816,075. The predetermined overhead rate is then the applied overhead divided by actual labor hours: $816,075 ÷ 36,270 hours = $22.50/hour.

Now, using the predetermined overhead rate and the estimated total manufacturing overhead, we calculate the estimated direct labor-hours: $802,125 ÷ $22.50 per hour = 35,650 hours.