Question

Goods in process inventory account of a manufacturing company that uses an overhead rate based on the direct labor cost has a 4,400 debit balance after all posting is completed. the cost sheet of the one job still in process shows direct materialcost of 2,000 and direct labor cost of 800. Therefore the companys overhead application rate is?

Answer 1

Answer:

Overhead absorption rate

= Overhead absorbed/Actual labour cost x 100

= $4,400/$800  x 100

= 550% of direct labour cost

Explanation:

Since the overhead absorbed is $4,400, there is need to divide the overhead absorbed by actual direct labour cost multiplied by 100. This gives the overhead application rate.