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Nguyen Inc. applies overhead to products based on direct labor hours using normal costing. During 2016,...

Nguyen Inc. applies overhead to products based on direct labor hours using normal costing. During 2016, total overhead costs were estimated to be $500,000. Actual overhead totaled $540,000 based on 32,000 actual direct labor hours. At the end of the year, overhead was overapplied by $20,000. Based on this information, what was the predetermined overhead rate used during 2016?

$16.88 per direct labor hour.

$16.25 per direct labor hour.

$15.63 per direct labor hour.

$17.50 per direct labor hour.

None of the answer choices is correct.
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Answer #1

Estimated overheads = $500,000

predetermined overhead rate = ?

Actual overhead = $540,000

Overapplied overhead = $20,000

Overhead applied = ?

Overapplied overhead = Overhead applied - Actual overhead

20,000 = Overhead applied - 540,000

Overhead applied = $560,000

Overhead applied = Actual direct labor hour x predetermined overhead rate

560,000 = 32,000 x predetermined overhead rate

predetermined overhead rate = $17.50 per direct labor hour

Fourth option is correct

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