Intercontinental Company bases its predetermined overhead rate on direct labor h

Question

Intercontinental Company bases its predetermined overhead rate on direct labor hours. At the beginning of the current year, the company estimated that its manufacturing overhead would total $440,000 during the year. During the year, the company incurred $400,000 in actual manufacturing overhead costs. The manufacturing overhead account showed that overhead was under applied by $16,000 during the year. If the predetermined overhead rate was $40.00 per direct labor hour, how many hours were worked during the year?

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Explanation / Answer

Overhead actually applied = 400000

Overhead underapplied = 16000

Estimated overhead to be applied = 400000+16000 i.e 416000

Hours worked = 416000/40 i.e 10400 hours

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