Asked by Baylee Grace on Apr 28, 2024
Verified
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.If overhead was underapplied by $2,000, the predetermined overhead rate for the Corporation for the year must have been:
A) $7.80 per direct labor-hour
B) $8.00 per direct labor-hour
C) $8.20 per direct labor-hour
D) $8.40 per direct labor-hour
Predetermined Overhead Rate
A rate calculated at the beginning of the accounting period to allocate overhead costs to products or services, based on estimated costs and activity levels.
Direct Labor-Hours
The cumulative number of hours put in by workers who are directly engaged in producing goods or delivering a service.
Manufacturing Overhead
Costs related to the production environment that cannot be directly tied to the finished product, such as maintenance expenses, and are necessary for the manufacturing process.
- Understand the computation of the predetermined overhead rate using direct labor-hours or machine-hours.
Verified Answer
$2,000 = $80,000 - Overhead applied
Overhead applied = $80,000 - $2,000 = $78,000
Overhead applied = Predetermined overhead rate × Amount of the allocation base incurred
$78,000 = Predetermined overhead rate × 10,000 direct labor-hours
Predetermined overhead rate = $78,000 ÷ 10,000 direct labor-hours = $7.80 per direct labor-hour
Learning Objectives
- Understand the computation of the predetermined overhead rate using direct labor-hours or machine-hours.
Related questions
Pine Publishing Corporation Uses a Predetermined Overhead Rate Based on ...
Assume That the Company Uses a Plantwide Predetermined Manufacturing Overhead ...
The Predetermined Overhead Rate Is Closest To ...
Brothern Corporation Bases Its Predetermined Overhead Rate on the Estimated ...
Valvano Corporation Uses a Job-Order Costing System with a Single ...