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Lorenzo Company applies overhead to jobs on the basis of direct materials cost. At year-end, the Work in Process Inventory account shows the following. Work in Process Inventory Date ExplanationDebit Credit Balance Dec.31 Direct materials cost1,900,000 1,900,000 31 Direct labor cost210,000 2,110,000 31 Overhead applied684,000 2,794,000 31 To finished goods 2,723,000 71,000 1. Determine the predetermined overhead rate used (based on direct materials cost). 2. Only one job remained in work in process inventory at December 31. Its direct materials cost is $22,000. How much direct labor cost and overhead cost are assigned to this job

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Answer:

1. Overhead rate = Overhead costs / Direct material costs

Overhead rate = $684,000 / $1,900,000

Overhead rate = 0.36

Overhead rate = 36%

2. How much direct labor cost and overhead cost are assigned to this job?

Total cost of job in process                      $71,000

Less: Overhead applied                            $7,920

          ($22,000 * 36%)

Less: Material cost of job in process        $22,000

Direct labor cost                                        $41,080

Hence, direct labor cost is $41,080 and Overhead cost is $7,920

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