Question

The Work in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $6,048 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of $2,400 and direct labor cost of $1,200. Therefore, the company's overhead application rate is:

Answer 1

The company's overhead application rate is $2.04

Step-by-step explanation:

For computing the overhead application rate, first, we have to compute the applied overhead, then the only rate is being computed.

So, the applied overhead equals to

= Balance of work in progress - direct material cost - direct labor cost

= $6,048 - $2,400 - $1,200

= $2,448

Now the overhead application rate equals to

= Applied overhead ÷ direct labor cost

= $2,448 ÷ $1,200

= $2.04