The Work in Process account of Village Manufacturing shows a balance of $42 000 at the end of an accounting period.The job cost orders of the two uncompleted jobs show charges of $15 000 and $7000 for materials used and charges of $10 000 and $5000 for direct labour used.From this information it appears that the company is using a predetermined overhead rate as a percentage of direct labour costs,of:

Question

Quizplus · Accepted Answer

We can use the following formula to calculate the predetermined overhead rate:
Predetermined overhead rate = Estimated overhead costs ÷ Estimated direct labour costs
Since we are not given the estimated values, we can use the actual values to estimate the predetermined overhead rate.

Total direct labour costs = $10,000 + $5000 = $15,000
Total overhead costs = Work in Process balance - (Total materials used + Total direct labour costs)
= $42,000 - ($15,000 + $10,000 + $7000 + $5000)
= $42,000 - $37,000
= $5000

Predetermined overhead rate = $5000 ÷ $15,000 = 0.3333 or 33.33%

Therefore, the best choice is C, as it matches our calculated value for the predetermined overhead rate.

The Work in Process Account of Village Manufacturing Shows a Balance