Question

The Work in Process inventory account of a manufacturing firm shows a balance of $3,000 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $500 and $300 for materials, and charges of $400 and $600 for direct labor. From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct labor costs, of:

Answer 1

Estimated manufacturing overhead rate= $1.2 per direct labor dollar

Step-by-step explanation:

First, we need to determine the allocated overhead:

Allocated overhead= 3,000 - 800 - 1,000

Allocated overhead= $1,200

Now, by using the following formula we can calculate the predetermined overhead rate:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

1,200 = Estimated manufacturing overhead rate*1,000

1,200 / 1,000= Estimated manufacturing overhead rate

Estimated manufacturing overhead rate= $1.2 per direct labor dollar