The work in process account of Blue Manufacturing shows a balance of $84 000 at the end of an accounting period. The job cost orders of the two uncompleted jobs show charges of $29 000 and $10 000 for materials used and charges of $20 000 and $16 000 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:

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The total charges for materials used are $29,000 + $10,000 = $39,000, and for direct labor used are $20,000 + $16,000 = $36,000. The total work in process is $84,000. The difference between the total WIP and the sum of materials and labor costs is the overhead applied. Overhead = $84,000 - ($39,000 + $36,000) = $84,000 - $75,000 = $9,000. The predetermined overhead rate as a percentage of direct labor costs is calculated as ($9,000 / $36,000) * 100 = 25%.

The Work in Process Account of Blue Manufacturing Shows a Balance