Question

The Work in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $6,884 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of $2,600 and direct labor cost of $1,400. Therefore, the company's overhead application rate is:______
a. 111% of direct labor cost.

b. 186% of direct labor cost.

c. 206% of direct labor cost.

d. 49% of direct labor cost.

e. 54% of direct labor cost.

Answer 1

Answer:

d. 49% of direct labor cost.

Explanation:

Overhead Rate based on direct labor  has cost of  $6,884

Direct material costs  $2,600

Direct labor costs  $1,400

Overhead Cost based on direct labor cost = Direct Labor Costs * Percentage Rate

Percentage  Rate=  Overhead Cost / Direct Labor Costs

      Percentage  Rate            = $6,884 /$1,400 = 4.917

This can be rechecked by multiplying the direct labor cost with the given rate.

So multiplying $1400*4.917= $6,884 which is the required amount.