O.K. Company uses a job order cost accounting system and allocates its overhead on the basis of direct labor costs. O.K. 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 O.K. Company's overhead application rate?
A) 6.25%.
B) 62.5%.
C) 160%.
D) 1600%.
E) 67%.

Question

Quizplus · Accepted Answer

O.K. Company's overhead application rate is calculated as follows:

Overhead application rate = Total estimated overhead / Total estimated direct labor cost

Total estimated overhead = $800,000

Total estimated direct labor cost = 50,000 labor hours x $10.00 per hour = $500,000

Overhead application rate = $800,000 / $500,000 = 160%

Therefore, the correct answer is C) 160%.

OK Company Uses a Job Order Cost Accounting System and Allocates