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:
A) 83%.
B) 120%.
C) 40%.
D) 300%.

Question

Quizplus · Accepted Answer

The total direct labor cost is $400 + $600 = $1,000. The total materials cost is $500 + $300 = $800. The total cost in Work in Process is $3,000. Therefore, the overhead applied is $3,000 - ($800 + $1,000) = $1,200. The predetermined overhead rate is $1,200 / $1,000 = 120%.

The Work in Process Inventory Account of a Manufacturing Firm