Question

CWN Company uses a job order costing system and last period incurred $70,000 of actual overhead and $100,000 of direct labor. CWN estimates that its overhead next period will be $85,000. It also expects to incur $100,000 of direct labor cost. If CWN bases applied overhead on direct labor cost, its predetermined overhead rate for the next period should be:

Answer 1

Answer:

85%

Explanation:

With regards to the above information, the predetermined over head is calculated as seen below.

Predetermined overhead = [(Estimated overhead / Expected labor cost) × 100]

Estimated overhead = $85,000

Expected labor cost = $100,000

Then,

Predetermined overhead = [($85,000 / $100,000) × 100]

Predetermined overhead = 0.85 × 100

Predetermined overhead = 85%

Therefore, the predetermined overhead rate for the next period should be 85%