The Work- in- Process Inventory account of Charles River Corporation has a balance of $4,800 at the end of an accounting period. The job cost sheets of two incomplete jobs show charges of $800 and $400 for materials used and charges of $600 and $1,000 for direct labor used. From this information, it appears that Charles River is using a predetermined rate, as a percentage of direct labor costs of:
A) 80%
B) 125%
C) 41.7 %
D) 240%

Question

Quizplus · Accepted Answer

The total charges for materials used are $800 + $400 = $1,200, and the total charges for direct labor used are $600 + $1,000 = $1,600. The Work-in-Process Inventory balance is $4,800, which includes both materials and labor costs. Subtracting the materials and labor costs from the total gives $4,800 - $1,200 - $1,600 = $2,000, which represents the overhead applied. The predetermined overhead rate, based on direct labor costs, is calculated as ($2,000 / $1,600) * 100% = 125%.

The Work- In- Process Inventory Account of Charles River Corporation