The Work in Process Inventory account of a manufacturing company that uses an overhead rate based on 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 material cost of $2,000 and direct labor cost of $800. Therefore, the company's overhead application rate is:
A) 40% of direct labor cost.
B) 50% of direct labor cost.
C) 80% of direct labor cost.
D) 200% of direct labor cost.
E) 300% of direct labor cost.

Question

Quizplus · Accepted Answer

The total cost in Work in Process is $4,400, which includes direct materials ($2,000), direct labor ($800), and applied overhead. The overhead is the difference: $4,400 - $2,000 - $800 = $1,600. The overhead rate is $1,600 / $800 = 200% of direct labor cost.

The Work in Process Inventory Account of a Manufacturing Company