Question

The Work in Process inventory account of a manufacturing company shows a balance of $2,600 at the end of an accounting period. The job cost sheets of the two uncompleted jobs show charges of $400 and $200 for direct materials, and charges of $300 and $500 for direct labor. From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct labor cost ($) of:

Answer 1

Answer: 150%

Step-by-step explanation:

Based on the question,

Direct materials = $400 + $200 = $600

Direct labor cost = $300 + $500 = $800

Overhead = Closing WIP - Direct material cost - Direct labor cost

= $2600 - $600 - $800

= $1200

The predetermined overhead rate based on the direct labor will be calculated as:

= Overhead / Direct labour cost

= $1200/$800

= 1.50

= 150%