The Work-in-Process Inventory account of a manufacturing firm has a balance of $2,400 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $400 and $200 for materials used, and charges of $300 and $500 for direct labor used. Overhead is applied as a percentage of direct labor costs. The predetermined rate is:

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The total direct labor cost is $300 + $500 = $800. The total materials cost is $400 + $200 = $600. The total cost in Work-in-Process Inventory is $2,400. The overhead applied is the difference: $2,400 - ($600 + $800) = $1,000. The predetermined overhead rate is $1,000 / $800 = 1.25 or 125.0%.

The Work-In-Process Inventory Account of a Manufacturing Firm Has a Balance