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Calculate How many hours were worked during the year

Energypac Company’s predetermined overhead rate is based on direct labor hours. At the beginning of the current year, the company estimated that its manufacturing overhead would total $440,000 during the year. During the year, the company incurred $400,000 in actual manufacturing overhead costs. The Manufacturing Overhead account showed that overhead was underapplied by $16,000 during the year. If the predetermined overhead rate was $40.00 per direct labor hour, how many hours were worked during the year? 

First, determine the amount of overhead applied to production by reference to the information about the Manufacturing Overhead account.
Amount underapplied = Actual overhead – Amount applied to production
Amount underapplied = $400,000 – Amount applied to production = $16,000; Amount applied to production = $384,000
Then, solve for the direct labor hours here (the activity base for the overhead rate).
Manufacturing overhead applied = Predetermined overhead rate x Direct labor hours = $384,000 = $40.00 per direct labor hour x Actual direct labor hours; Actual direct labor hours = 9,600
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