Cosi Company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Cosi expects to incur $800,000 of overhead during the next period, and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is Cosi Company's overhead application rate?
A) 1600%.
B) 62.5%.
C) 67%.
D) 6.25%.
E) 160%.

Question

Quizplus · Accepted Answer

The overhead application rate is calculated by dividing the expected overhead by the expected direct labor costs. Expected direct labor costs are 50,000 hours * $10/hour = $500,000. Therefore, the overhead application rate is $800,000 / $500,000 = 1.6 or 160%.

Cosi Company Uses a Job Order Costing System and Allocates