Question

Leeds Architectural Consultants began operations on January 2. The following activity was recorded in the company’s Work in Process account for the first month of operations: Work in Process Costs of subcontracted work 230,000 To completed projects 390,000 Direct staff costs 75,000 Studio overhead 120,000 Leeds Architectural Consultants is a service firm, so the names of the accounts it uses are different from the names used in manufacturing companies. Costs of Subcontracted Work is comparable to Direct Materials; Direct Staff Costs is the same as Direct Labor; Studio Overhead is the same as Manufacturing Overhead, and Completed Projects is the same as Finished Goods. Apart from the difference in terms, the accounting methods used by the company are identical to the methods used by manufacturing companies. Leeds Architectural Consultants uses a job-order costing system and applies studio overhead to Work in Process on the basis of direct staff costs. At the end of January, only one job was still in process. This job (Lexington Gardens Project) had been charged with $6,500 in direct staff costs.

Compute the predetermined overhead rate that was in use during January.

Answer 1

The predetermined overhead rate was 160%

Step-by-step explanation:

1. Because $120,000 of studio overhead was applied to Work in Process on the basis of $75,000 of direct staff costs, the predetermined overhead rate was 160%:

Studio overhead applied/Direct staff cost incurred= $120,000/$75000

= 160% rate