Brabo Corporation uses direct labor-hours in its predetermined overhead rate. At

Question

Brabo Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 15,700 hours. At the end of the year, actual direct labor-hours for the year were 16,700 hours, the actual manufacturing overhead for the year was $352,960, and manufacturing overhead for the year was overapplied by $27,800. The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been:

a) $327,124
b) $357,960
c) $380,760
d) $347,960

Explanation / Answer

At the beginning of the period : Estimated total manufacturing overhead cost ÷ Estimated total units in the allocation base = Predetermined overhead rate ie Predetermined overhead rate = Estimated total manufacturing overhead cost/15700 At the end of the period : Total manufacturing overhead applied = Actual total manufacturing overhead cost + Over-applied overhead = 352960+27800 = 380,760 During the period : Predetermined overhead rate × Actual total units of the allocation base incurred during the period = Total manufacturing overhead applied ie (Estimated total manufacturing overhead cost/15700) x 16700 = $380,760 ie Estimated total manufacturing overhead cost = $380,760 x 15700/16700 = $357,960 SO Ans is (B) $357,960

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