Question

Kayak Company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Kayak 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:

Answer 1

Answer:

The overhead application rate was = 20% of direct labor cost

Explanation:

Overheads are charged to units produced by the means of using an estimated overhead absorption rate. This rate is computed using budgeted overhead and budgeted activity level.

The overheads absorption rate

= (Budgeted overhead for the period /budgeted labour cost) × 100

P.O.A.R =  Applied overheads = POAR × actual labour cost

6,000 = P.O.A.R ×  30,000

P.O.A.R = 6,000/30,000 = 20%

The overhead application rate was = 20% of direct labor cost

Answer 2

Answer:

The overhead application rate was: $0.20 per direct labor cost

Explanation:

The overhead application rate is used to apportion the factory overheads to jobs or departments

The overhead application rate = Budgeted Overheads / Budgeted Activity

                                                    = $6,000/$30,000

                                                    = $0.20 per direct labor cost