Asked by Lopez Anibal on Jul 21, 2024
Verified
The Work in Process inventory account of a manufacturing company shows a balance of $2,400 at the end of an accounting period. The job cost sheets of the two uncompleted jobs show charges of $400 and $200 for direct materials, and charges of $300 and $500 for direct labour. From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct labour costs, of:
A) 80%.
B) 125%.
C) 300%.
D) 240%.
Predetermined Overhead Rate
A predetermined overhead rate is calculated before a period begins and is used to apply manufacturing overhead costs to products based on a common activity base, such as machine hours or labor hours.
Direct Labour
The workforce directly involved in the manufacturing of products or the delivery of services, whose costs are directly attributable to the production process.
- Acquire knowledge on the significance of direct labor hours in the apportionment of manufacturing overhead expenses.
Verified Answer
CL
Chris LogsdonJul 21, 2024
Final Answer :
B
Explanation :
The total direct materials cost is $400 + $200 = $600, and the total direct labor cost is $300 + $500 = $800. The total costs for the uncompleted jobs are $600 (materials) + $800 (labor) = $1400. Given that the Work in Process inventory shows a balance of $2400, the difference of $1000 ($2400 - $1400) must be the applied overhead. The predetermined overhead rate, based on direct labor, is calculated as ($1000 overhead / $800 direct labor) = 1.25 or 125%.
Learning Objectives
- Acquire knowledge on the significance of direct labor hours in the apportionment of manufacturing overhead expenses.