A company's overhead rate is 200% of direct labor cost.Using the following incomplete accounts,determine the cost of direct materials used.
A)$130,000.
B)$65,000.
C)$270,000.
D)$265,000.
E)$280,000.

Question

A company's overhead rate is 200% of direct labor cost.Using the following incomplete accounts,determine the cost of direct materials used.   
A)$130,000. 
B)$65,000. 
C)$270,000. 
D)$265,000. 
E)$280,000.

Quizplus · Accepted Answer

We can use the formula of overhead rate = (total overhead cost/total direct labor cost) * 100% to find the total direct labor cost. 
200% = (total overhead cost/total direct labor cost) * 100%
total overhead cost = 2 * total direct labor cost
We can also use the formula of total manufacturing cost = direct materials used + direct labor cost + manufacturing overhead cost
Since we're given the total manufacturing cost and the overhead rate, we can solve for direct labor cost:
Total manufacturing cost = direct materials used + direct labor cost + manufacturing overhead cost
$975,000 = direct materials used + (direct labor cost) + (2 * direct labor cost)
$975,000 = direct materials used + 3 * direct labor cost
Direct labor cost = $325,000
Now we can use the overhead rate formula to find the total overhead cost:
200% = (total overhead cost/$325,000) * 100%
total overhead cost = $650,000
Finally, we can use the formula of total manufacturing cost to solve for direct materials used:
$975,000 = direct materials used + $325,000 + $650,000
Direct materials used = $65,000

A Company's Overhead Rate Is 200% of Direct Labor Cost