For Jacobs Company the predetermined overhead rate is 70% of direct labor cost.During the month $600000 of Factory Labor was incurred of which $140000 is indirect labor.Actual overhead incurred was $320000.The amount of overhead added to Work in Process Inventory should be:
A)$322000
B)$320000
C)$420000
D)$460000

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of direct labor cost incurred:
Direct labor cost = Total factory labor cost - Indirect labor cost
Direct labor cost = $600,000 - $140,000
Direct labor cost = $460,000

Then, we can calculate the overhead applied to Work in Process Inventory:
Overhead applied = Direct labor cost * Predetermined overhead rate
Overhead applied = $460,000 * 70%
Overhead applied = $322,000

Finally, we compare the overhead applied to the actual overhead incurred and make the necessary adjustment:
Overhead applied - Actual overhead incurred = Over-/under-applied overhead
$322,000 - $320,000 = $2,000 over-applied overhead

Therefore, the amount of overhead added to Work in Process Inventory is $322,000 (Choice A).

For Jacobs Company the Predetermined Overhead Rate Is 70% of Direct