The Work in Process Inventory account of a manufacturing company has a $4,400 debit balance.The company applies overhead using direct labor cost.The cost sheet of the only job still in process shows direct material cost of $2,000 and direct labor cost of $800.Therefore,the company's predetermined overhead 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 Work in Process Inventory account balance ($4,400) includes direct materials ($2,000), direct labor ($800), and applied overhead. Subtracting direct materials and direct labor from the total gives us the applied overhead: $4,400 - $2,000 - $800 = $1,600. The predetermined overhead rate is the applied overhead ($1,600) divided by the direct labor cost ($800), which equals 200% of direct labor cost.

The Work in Process Inventory Account of a Manufacturing Company