A manufacturing company uses a job order cost accounting system.Overhead is applied using pounds of direct materials used as an allocation base.Total costs for a particular job were $5,720.Of this amount $2,600 was direct labor and $1,040 was direct material.The company pays $26 per hour of direct labor and $2 per pound of direct materials.What is this company's overhead rate?
A) $2 per pound of direct material used.
B) $1,040 per pound of direct material used.
C) $520 per pound of direct material used.
D) $4 per pound of direct material used.
E) $2,080 per pound of direct material used.

Question

Quizplus · Accepted Answer

DM + DL + OH = Total cost
$1,040 + $2,600 + OH = $5,720
OH = $2,080 applied overhead
Total DM cost / DM cost per pound = Number of DM pounds
$1,040/ $2 = 520 pounds of DM
Predetermined overhead rate (POHR) x Allocation base = Applied overhead
POHR x 520 DM pounds = $2,080
POHR = $2,080/520
POHR = $4.00 per pound of DM

A Manufacturing Company Uses a Job Order Cost Accounting System