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?

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