Question

For Jacobs Company, the predetermined overhead rate is 70% of direct labor cost.

During the month, $300,000 of factory labor costs are incurred of which $70,000 is
indirect labor. Actual overhead incurred was $160,000. The amount of overhead debited
to Work in Process Inventory should be:
A) $161,000
B) $160,000
C) $210,000
D) $230,000

Answer 1

The predetermined overhead rate is 70% of direct labor cost. The overhead debited to Work in Process Inventory should be $161,000.

Step-by-step explanation:

The predetermined overhead rate is calculated by dividing estimated manufacturing overhead costs by the estimated allocation base. In this case, the predetermined overhead rate is 70% of direct labor costs. Given that $300,000 of factory labor costs were incurred, of which $70,000 is indirect labor, the total amount of direct labor cost is $300,000 - $70,000 = $230,000.

The overhead debited to Work in Process Inventory is calculated by multiplying the predetermined overhead rate by the total amount of direct labor cost. Therefore, the overhead debited to Work in Process Inventory is 70% x $230,000 = $161,000.

Therefore, the correct answer is A) $161,000.