The Goods in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $4,400 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of $2,000 and direct labor cost of $800. Therefore, the company's overhead application rate is:
A) 40%.
B) 50%.
C) 80%.
D) 200%.
E) 220%.

Question

Quizplus · Accepted Answer

The overhead applied to the job is found by subtracting the direct material and direct labor costs from the total Goods in Process Inventory balance: $4,400 - $2,000 - $800 = $1,600. Since the overhead is based on direct labor cost, the overhead application rate is $1,600 / $800 = 200%.

The Goods in Process Inventory Account of a Manufacturing Company