The Work in Process Stock 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 Labour. From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct Labour costs, of
A)83%
B)120%
C)40%
D)300%

Question

Quizplus · Accepted Answer

The total direct labor cost is £400 + £600 = £1000. The total materials cost is £500 + £300 = £800. The total cost of the uncompleted jobs is £1000 (labor) + £800 (materials) = £1800. Given that the Work in Process Stock account shows a balance of £3000, the difference of £1200 (£3000 - £1800) must represent the applied overhead. The predetermined overhead rate as a percentage of direct labor costs is therefore £1200 / £1000 = 120%.

The Work in Process Stock Account of a Manufacturing Firm