Question

Darrow Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the Corporation worked 10,000 direct labor-hours and incurred $80,000 of actual manufacturing overhead cost.

a. If overhead was underapplied by $2,000, the predetermined overhead rate for the Corporation for the year must have been _______.

Answer 1

$7.8 per direct labor hour

Step-by-step explanation:

The formula to compute the predetermined overhead rate is shown below:

Predetermined overhead rate = (Total estimated manufacturing overhead) ÷ (estimated direct labor-hours)

where,

Total estimated manufacturing overhead = Actual manufacturing overhead - under applied overhead

= $80,000 - $2,000

= $78,000

And, the estimated direct labor hours is 10,000

So, the predetermined overhead rate is

= $78,000 ÷ 10,000

= $7.8 per direct labor hour