Sherrell Inc applies overhead using direct labor hours. The following data are available for the year: Estimated direct labor hours 170,000 Actual direct labor hours 160,000 Actual overhead $600,000 At the end of the year, it was determined that overhead was overapplied by $40,000. Required: A. What was the total applied overhead for the year? B. What was the predetermined overhead rate?
A. Applied overhead must have been $640,000. (X - $600,000 = $40,000 overapplied)
B. $4.00 per direct labor hour calculated as follows:
Overhead applied = Actual cost driver units x Predetermined overhead rate
$640,000 = 160,000 x Predetermined overhead rate
Predetermined overhead rate = $4.00
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