Baxter Accounting Services estimates for next year revenues of $3,000,000, direct labor of $600,000, and overhead of $1,050,000. Under traditional costing, overhead is applied to audit jobs using the rate of
A) 35% of revenues.
B) 20% of revenues.
C) 56% of direct labor.
D) 175% of direct labor.

Question

Quizplus · Accepted Answer

Traditional costing applies overhead based on a predetermined rate. Here, the overhead of $1,050,000 is applied to the direct labor cost of $600,000, which results in a rate of 175% ($1,050,000 / $600,000).

Baxter Accounting Services Estimates for Next Year Revenues of $3,000,000