Doyle Co.uses a job order cost accounting system.At year-end the Work-in-Process Inventory controlling account showed a debit balance of $43,125.For the two jobs in process at year-end,one showed $6,000 in direct materials and $4,500 in direct labor.The job cost sheet for the second job showed $9,000 in direct materials and $6,750 in direct labor.If the company is using a predetermined overhead application rate based on direct labor cost,the rate is:
A)50%.
B)100%.
C)150%.
D)200%.

Question

Quizplus · Accepted Answer

To find the predetermined overhead application rate based on direct labor cost, we need to use the following formula:

Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Direct Labor Costs

Since we are not given the estimated overhead costs, we cannot calculate the exact predetermined overhead rate. However, we know that the rate is based on direct labor cost and that the company is using a job order cost accounting system.

We can assume that the estimated overhead costs are allocated to jobs based on the estimated direct labor costs for each job. Therefore, we can use the total direct labor cost for the two jobs in process at year-end to estimate the total direct labor cost for the year.

Total Direct Labor Cost = Direct Labor Cost for Job 1 + Direct Labor Cost for Job 2
Total Direct Labor Cost = $4,500 + $6,750
Total Direct Labor Cost = $11,250

Assuming that the estimated overhead costs for the year are $16,875 ($11,250 x 150%), the predetermined overhead application rate based on direct labor cost would be:

Predetermined Overhead Rate = Estimated Overhead Costs / Estimated Direct Labor Costs
Predetermined Overhead Rate = $16,875 / $11,250
Predetermined Overhead Rate = 1.5 or 150%

Therefore, the answer is C) 150%.

Doyle CoUses a Job Order Cost Accounting System