Question

Moonrise Bakery applies factory overhead based on direct labor costs. The company incurred the following costs during the year: direct materials costs, $750,000; direct labor costs, $4,000,000; and factory overhead costs applied, $3,200,000. 1. Determine the company’s predetermined overhead rate for the year. 2. Assuming that the company’s $81,000 ending Work in Process Inventory account for the year had $30,000 of direct labor costs, determine the inventory’s direct materials costs.

Answer 1

Answer:

1. $0.8

2. $27,000

Explanation:

1. The computation of the predetermined overhead rate is shown below:

The formula is given below:

Predetermined overhead rate = (Total estimated factory overhead) ÷ (estimated direct labor-cost)

=  $3,200,000 ÷ $4,000,000

= $0.8

2. The computation of the direct material cost would be

= Ending work in progress - Factory overhead - Direct labor cost

= $81,000 - $24,000 - $30,000

= $27,000

The factory overhead is computed below

= Direct labor cost × predetermined overhead rate

= 30,000 × 0.8

= $24,000