Dagger Corporation:

Dagger Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $210,900. At the end of the year, actual direct labor-hours for the year were 15,000 hours, manufacturing overhead for the year was underapplied by $11,400, and the actual manufacturing overhead was $204,900. The predetermined overhead rate for the year must have been closest to:

  • $12.03
  • $12.90
  • $13.84
  • $13.56

Answer: $12.90

Rationale:

Underapplied (overapplied) manufacturing overhead = Actual manufacturing overhead − Manufacturing overhead applied

Manufacturing overhead applied = Actual manufacturing overhead − Underapplied manufacturing overhead

= $204,900 − $11,400

= $193,500

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $193,500 ÷ 15,000 direct labor-hours = $12.90 per direct labor-hour

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