Question

ABC is a job-order costing manufacturer that uses a plantwide overhead rate based on machine hours. Estimations for the year include $2,000,000 in overhead and 1,000,000 machine hours. ABC produced four products in March. Data are as follows:

	Product89	Product90	Product91	Product92
Balance, 3/1	$70,000	$20,000	$         0	$         0
Direct materials	$30,000	$80,000	$100,000	15,000
Direct labor cost	$25,000	$ 40,000	$60,000	$10,000
Actual machine hours – for month	1,000	2,000	3,000	500

By March 31, Jobs 89, 90, and 91 were completed and sold. The rest of the jobs remained in process.

A.	Calculate the plantwide overhead rate.
B.	Calculate the Work in Process on March 31.
C.	Calculate the cost of goods sold for March.
D.	Assume ABC marks up cost by 30%. What is the selling price of Jobs 89, 90, and 91?

Answer 1

(a) Plantwide Overhead Rate :-

Estimated Overhead/Machine Hours

= $2000000/1000000 = $2

(b) Work in Process on March 31:-

	Product 92
Balance 3/1	$0
Direct Materials	$15000
Direct Labour Cost	$10000
Overhead (500 machine hours * $2)	$1000
WIP on March 31	$26000

(c) Cost of Goods sold for March:-

	Product 89	Product 90	Product 91
Balance 3/1	$70000	$20000	$0
Direct Materials	$30000	$80000	$100000
Direct Labour Cost	$25000	$40000	$60000
Overhead	(1000 machine hours * $2) =$2000	(2000 machine hours * $2) = $4000	(3000 machine hours * $2) =$6000
COGS	$127000	$144000	$166000

(d) Selling Price:-

	Product 89	Product 90	Product 91
COGS	$127000	$144000	$166000
Markup (30%)	($127000 * 30%) =$38100	($144000 * 30%) =$43200	($166000 * 30%) =$49800
Selling Price	$165100	$187200	$215800