Question

Darrow Company uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, the company worked 10,000 direct labor-hours and incurred $80,000 of actual manufacturing overhead cost. If overhead was underapplied by $2,000, the predetermined overhead rate for the company for the year must have been:

Answer 1

Estimated manufacturing overhead rate= $7.8 per direct labor hour

Step-by-step explanation:

First, we need to calculate the allocated overhead:

Under/over applied overhead= real overhead - allocated overhead

2,000 = 80,000 - allocated overhead

allocated overhead= 78,000

Now, we can determine the predetermined overhead rate:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

78,000 = Estimated manufacturing overhead rate*10,000

78,000/10,000= Estimated manufacturing overhead rate

Estimated manufacturing overhead rate= $7.8 per direct labor hour