Question

Job Costs Using a Plantwide Overhead Rate

Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $187,500, and budgeted direct labor hours were 15,000. The average wage rate for direct labor is expected to be $25 per hour. During June, Naranjo Company worked on four jobs. Data relating to these four jobs follow:

	Job 39	Job 40	Job 41	Job 42
Beginning balance	$25,500	$33,000	$17,500	$100
Materials requisitioned	18,300	20,800	11,200	15,700
Direct labor cost	9,400	17,900	5,850	6,600

Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 125 percent of cost. (Naranjo had originally developed Job 40 to order for a customer; however, that customer was near bankruptcy and the chance of Naranjo being paid was growing dimmer. Naranjo decided to hold Job 40 in inventory while the customer worked out its financial difficulties. Job 40 is the only job in Finished Goods Inventory.) Jobs 41 and 42 remain unfinished at the end of the month.

Required:

1. Calculate the balance in Work in Process as of June 30.

$

2. Calculate the balance in Finished Goods as of June 30.

$

3. Calculate the cost of goods sold for June.

$

4. Calculate the price charged for Job 39. Round your answer to the nearest cent.

$

5. What if the customer for Job 40 was able to pay for the job by June 30? What would happen to the balance in Finished Goods?

What would happen to the balance of Cost of Goods Sold?

Answer 1

Solution 1:

Predetermined overhead rate = Budgeted Overhead / Budgeted Direct labor cost = $187500 / (15000*$25) = 50% of Direct labor Cost

Computation Balance in Work in Process
	Job 41	Job 42
Beginning Balance	$17,500	$100
Materials Requisitioned	$11,200	$15,700
Direct Labor Cost	$5,850	$6,600
Overhead assugned (50%*Direct Labor cost)	$2,925	$3,300
Total work in process	$37,475	$25,700

Total balance in Work in Process = $37475 + $25700 = $63,175

Solution 2:

Balance in Finished Goods = Job 40 = 33000 + 20800+ 17900 + (17900*50%) = $80,650

Solution 3:

Cost of goods sold for June = Job 39 = 25500 + 18300+ 9400 + (9400*50%) = $57,900

Solution 4:

Price charged for Job 39 = Cost of Job 39 *125% = $57900*125% = $72,375

Solution 5:

If the customer for Job 40 was able to pay for the job by June 30, balance in Finished Goods = $0

Balance of Cost of Goods Sold = increase by cost Job 40 = Increase by $80,650