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Kayak Company uses a job order costing system and allocates its overhead on the basis of...

Kayak Company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Kayak Company's production costs for the year were: direct labor, $29,000; direct materials, $49,000; and factory overhead applied $5,900. The predetermined overhead rate was: Multiple Choice

12.04%.

20.34%.

491.53%.

4.92%.

16.90%.

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Answer #1
Answer: Option b. 20.34%
Overhead cost are allocated on the basis of direct labor cost
Predetermined overhead rate (%) = ( Facory overhead / Direct labor ) * 100
= ( $ 5,900 / $ 29,000 ) * 100
= 20.34% ( Rounded off to two decimal places )
Thus, Predetermined overhead rate is 20.34%
Note:
We can cross check our answer:
Applied factory overhead = 20.34% of direct labor cost
= 20.34% of $ 29,000
= $ 5,898.60 ( Difference due to rounding off overhead rate )
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