CWN Company uses a job order costing system and last period incurred $88,000 of actual overhead and $100,000 of direct labor. CWN estimates that its overhead next period will be $67,000. It also expects to incur $100,000 of direct labor cost. If CWN bases applied overhead on direct labor cost, its predetermined overhead rate for the next period should be:

Question

Jamison

Business

23 July, 08:20

CWN Company uses a job order costing system and last period incurred $88,000 of actual overhead and $100,000 of direct labor. CWN estimates that its overhead next period will be $67,000. It also expects to incur $100,000 of direct labor cost. If CWN bases applied overhead on direct labor cost, its predetermined overhead rate for the next period should be:

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Answers (1)

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Doyle · Answer 1

The multiple choices are:

a67%.

b90%.

c138%.

d111%.

e149%.

Correct option is A, 67%

Explanation:

Predetermined overhead rate=budgeted overhead next period/expected direct labor cost for next period * 100

budgeted overhead next period is $67,000

expected direct labor cost for next period is $100,000

Predetermined overhead rate=$67,000/$100,000*100

=67%

The correct option then is 67%, option A

Option E was arrived at using the inverse of the formula:direct labor cost divided by overhead

=100,000/67000*100=149%

In other words, one has to be meticulous in applying the formula to the variables given in the question.