Question

Doyle Co. uses a job order cost accounting system. At year-end the Work-in-Process Inventory controlling account showed a debit balance of $43,125. For the two jobs in process at year-end, one showed $6,000 in direct materials and $4,500 in direct labor. The job cost sheet for the second job showed $9,000 in direct materials and $6,750 in direct labor.

If the company is using a predetermined overhead application rate based on direct labor cost, the rate is:

A. 50%.
B. 100%.
C.150%.
D. 200%.

Answer 1

C. 150%

Step-by-step explanation:

The computation of the predetermined overhead application rate is shown below:

= (Overhead amount ÷ Total direct labor cost) × 100

where,

Overhead amount equals to

= Debit balance - direct material 1 - direct labor 1 - direct material 2 - direct labor 2

= $43,125 - $6,000 - $4,500 - $9,000 - $6,750

= $16,875

Total direct labor cost equal to

= $4,500 + $6,750

= $11,250

So, the predetermined overhead application rate would be

= ($16,875 ÷ $11,250) × 100

= 150%