Question

Canoe Company uses a job order cost accounting system and allocates its overhead on the basis of direct labor costs. Canoe Company's production costs for the year were: direct labor, $30,000; direct materials, $50,000; and factory overhead applied, $6,000. The overhead application rate was:
a. 5.0%.
b. 12.0%.
c. 20.0%.
d. 500.0%.
e. 16.7%.

Answer 1

Answer:

20%

Explanation:

Data provided:

Direct labor cost = $30,000

Direct materials cost = $50,000

Factory overhead applied = $6,000

Now,

The overhead application rate is given as:

Overhead application rate = $\frac{\textup{Factory overhead applied}}{\textup{Direct labor cost}}\times100$

therefore,

Overhead application rate = $\frac{\textup{6,000}}{\textup{30,000}}\times100$

or

Overhead application rate = 0.2 × 100% = 20%