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, $26,000; direct materials, $46,000; and factory overhead applied $5,600. The overhead application rate was:_______.
a. 17.69%.
b. 21.54%.
c. 464.29%.
d. 4.64%.
e. 12.17%.

Answer 1

Answer:

b. 21.54%.

Explanation:

The formula and the computation of the overhead application rate is shown below:

As we know that

Overhead application rate is

= (Applied factory overhead ÷ Direct labor cost)

where,

Applied factory overhead is $5,600

And, the direct labor cost is $26,000

Now putting these values to the above formula

So, the overhead application rate is

= ($5600 ÷ $26000)

= 21.54%    

We simply divided the applied factory overhead which is indirect cost by the direct labor cost i.e direct cost so that the overhead application rate could come