For Wilton Company, the predetermined overhead rate is 70% of direct labor cost. During the month, $360,000 of factory labor costs are incurred of which $100,000 is indirect labor. Actual overhead incurred was $180,000. The amount of overhead debited to Work in Process Inventory should be: a. $182,000 b. $180,000 c. $252,000 d. $260,000 why did we get A as an answer?

Answer: A. $182,000

Explanation:

Given the following;

Factory labor cost = $360,000

Indirect labor cist = $100,000

Actual overhead = $180,000

Predetermined overhead = 70% of direct labor cost

The factory labor cost also refers to the total cost of labor (both direct labor and indirect labor)

Direct labor cost = factory labor cost - indirect labor cost

Direct labor cost = $360,000 - $100,000 = $260,000

Therefore, predetermined overhead = 0.7 * 260,000 = $182,000

The amount of overhead debited to Work in Process Inventory should be: a. $182,00

Explanation:

The Overheads are Applied in the Manufacturing Costs as:

Budgeted Rate * Actual Activity for the Month

At the End of the Period we would need to determined whether this amount of overhead is Over or Under Applied by comparing it to the actual overheads incurred of $180,000 (given)

In our Case, the predetermined overhead rate is 70% of direct labor cost

Thus we need to find the Direct Labor Cost first:

Total Labor Costs $360,000

Less Indirect Labor Costs $100,000

Direct Labor Cost $260,000

Therefore Overheads applied would be determined as:

= $260,000 * 70%

= $182,000