Question

At the beginning, the accountant for Limited industries estimated that total overhead would be $80,000. Overhead is allocated to jobs on the basis of direct labour cost. Direct labour was budgeted to cost $200,000 this period. During the period, only three jobs were worked on. The following summarizes the direct materials and labour costs for each:

	Job 12	Job 123	Job 124
Direct materials	$45,000	$70,000	$30,000
Direct labour	70,000	90,000	50,000

Job 12 was finished and sold, Job 123 was finished but is waiting to be sold, and Job 1234 is still in process. Actual overhead for the period was $82,000.

A.  Calculate the cost of each job completed.

Job 12 - ?

Job 123 - ?

Job 1234 - ?

B.  Calculate the cost of goods sold.

C.  Calculate the amount of overapplied or underapplied overhead that will be prorated to the ending balances in work in process, finished goods, and cost of goods sold.

Answer 1

first let us know the predetermined overhead rate:

=>total overhead /total budgeted labor cost *100

=>80,000/200,000*100

=>40%.

a.cost of each job completed:

	job 12	job 123	job 1234
direct materials	45,000	70,000	30,000
direct labor	70,000	90,000	50,000
overhead applied (70,000...90,000...50,0000...*0.40)	28,000	36,000	20,000
total cost	143,000	196,000	100,000

b.cost of goods sold:

it is the cost of job 12 =>143,000.

c.

total applied overhead =28,000+36,000+20,000=>84,000.

actual overhead =82,000

over applied overhead = 2000.

prorating the ending balances.

	balance	weight	overapplied overhead prorated
work in process (job 1234)	100,000	0.23	(2000*0.23)=>460
finished goods (job 123)	196,000	0.45	(2000*0.45)=>900
cost of goods sold (job 12)	143,000	0.32	(2000*0.32)=>640
total	439,000		2000

the prorated amounts are to be reduced from work in process, finished goods, cost of goods sold amounts.