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15 October, 06:05

The Work-in-Process inventory account of a manufacturing firm shows a balance of $4,090 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $570 and $370 for materials, and charges of $600 and $800 for direct labor. From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct labor costs, of: Multiple Choice 43%.

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  1. 15 October, 06:35
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    125%

    Explanation:

    The computation of predetermined overhead rate is shown below:-

    Manufacturing overhead = $4,090 - ($570 + $370 + $600 + $800)

    = $4,090 - $2,340

    = $1,750

    Total direct labor = $600 + $800

    = $1,400

    Manufacturing overhead = Predetermined overhead rate * Direct labor

    Predetermined overhead rate = Manufacturing overhead : Direct labor

    = $1,750 : $1,400

    = 125%

    Therefore for computing the predetermined overhead rate we simply divide the manufacturing overhead by direct labor.
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