The work-in-process inventory account of a manufacturing company shows a balance

Question

The work-in-process inventory account of a manufacturing company shows a balance of $3,000 at the end of an accounting period. The job-cost sheets of the two incomplete jobs show charges of $500 and $300 for direct materials, and charges of $400 and $600 for direct labor. From this information, it appears that the company is using a predetermined overhead rate as a percentage of direct labor costs. What percentage is the rate

Explanation / Answer

Manufacturing overhead = $3000-($500+$300+$400+$600) =>Manufacturing overhead = $1200 Total direct labor = $400 + $600 = $1000 Manufacturing overhead = Predetermined overhead rate * Direct labor =>Predetermined overhead rate = Manufacturing overhead/Direct labor =>Predetermined overhead rate = $1200/$1000 =>Predetermined overhead rate = 120%

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