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1 October, 05:08

Parsons Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Last year, Parsons Corporation incurred $250,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was overapplied $12,000 for the year. If the predetermined overhead rate was $8.00 per direct labor-hour, how many hours did the Corporation work during the year?

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  1. 1 October, 05:26
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    Actual direct labor hours = 32,750 hours

    Explanation:

    Giving the following information:

    Actual overhead = $250,000 in actual manufacturing overhead cost. Overapplied overhead = $12,000 for the year.

    The predetermined overhead rate was $8.00 per direct labor-hour

    We need to reverse engineer the manufacturing overhead application process for the period.

    Under/over applied overhead = real overhead - allocated overhead

    If overhead was overapplied, the real overhead was lower than applied.

    -12,000 = 250,000 - allocated overhead

    allocated overhead = $262,000

    Now, we can determine the actual direct labor hours for the period:

    Allocated MOH = Estimated manufacturing overhead rate * Actual amount of allocation base

    262,000 = 8*Actual amount of allocation base

    Actual direct labor hours = 32,750 hours
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