The work in process account of Green 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

To find the predetermined overhead rate as a percentage of direct labour costs, we need to use the formula:

Predetermined overhead rate = Estimated overhead costs / Estimated direct labour costs

Since we don't have the estimated overhead costs, we can use the actual overhead costs incurred in the two jobs to estimate the total overhead costs:

Actual overhead costs = Work in process balance at the end of the period - Total costs of completed jobs
Actual overhead costs = $42,000 - (($15,000 + $10,000) + ($7,000 + $5,000))
Actual overhead costs = $42,000 - $37,000
Actual overhead costs = $5,000

Now we can use the formula to find the predetermined overhead rate:

Predetermined overhead rate = Actual overhead costs / Estimated direct labour costs
Predetermined overhead rate = $5,000 / (($10,000 + $5,000))
Predetermined overhead rate = 33.3%

Therefore, the best choice is C.

The Work in Process Account of Green Manufacturing Shows a Balance