Question

Sassafras Yacht Corporation began operations on December 1, 2017. The company uses normal

costing as part of a job-order cost system. During December, the company purchased $75,000 of

direct material, and then used $60,000 of these direct materials to start Job 450. The company

charged total conversion costs of $80,000 (direct labor and overhead) to Job 450 during December.

As of the end of December Job 450 was not complete. There was no underapplied or overapplied

overhead for December.

The company charges overhead to jobs using direct labor HOURS (careful!). The estimated direct

labor hours for 2018 are 25,000 hours and the estimated overhead cost for 2018 is $600,000. During

2018, the following transactions occurred.

1.

There were 5 jobs that had work completed on them in 2018. Some of the data for these jobs

are shown below:

Job 450

Job 500

Job 550

Job 600

Job 650

Direct Material Cost

$8,000

$60,000

$80,000

$20,000

$12,000

Direct Labor

Hours

5,000 hrs.

6,000 hrs.

10,000 hrs. 2,000 hrs.

3,000 hrs.

2.

The Direct Labor Rate for 2018 is $40 per hour.

3.

The company purchased $200,000 of direct materials.

4.

At the end of 2018, the jobs that were not finished were Jobs 600 and 650. Job 450 consisted

of 5,000 units of which 4,200 sold in 2018 at a selling price of $200 each. Job 550 consisted of

15,000 units of which 10,000 sold in 2018 at a selling price of $100 each. Job 500 consisted of

10,000 units, none of which sold at the end of 2018.

5.

Other costs incurred during 2018 include the following:

Advertising Expense

$125,000

Indirect Labor

$275,000

Maintenance- Factory

$ 75,000

Factory Insurance

$ 45,000

Administrative Expense

$450,000

Corporate General Expenses

$150,000

Depreciation- Factory

$60,000

F.G. Warehouse Depreciation

$ 40,000

Utilities- Factory

$110,000

Miscellaneous Overhead

$ 60,000

Selling Expense

$200,000

Indirect Materials

$ 75,000

Your Task:

A.

Prepare, in good form, a Schedule of Cost of Goods Manufactured for 2018.

B.

Add up the total costs of Jobs A, B and C. Does this total equal your Cost of Goods

Manufactured from Part A? Should it?

C.

Compute the underapplied or overapplied overhead for 2018. Is it under or overapplied?

D.

Assume that any underapplied or overapplied overhead is closed totally to Cost of Goods Sold

at the end of 2018. Prepare, in good form, an Income Statement for 2018.

Answer 1

Ans.

A. Statement Showing Cost Of Goods Manufactured :-

Particular	Job 450 Amt. in $	Job 500 Amt. in $	Job 550 Amt. in $	Job 600 Amt. in $	Job 650 Amt. in $
Direct Material	8,000	60,000	80,000	20,000	12,000
Direct Labor Cost @ 40 PH	(5,000 Hrs* 40) 2,00,000	(6,000 Hrs * 40) 2,40,000	(10,000 Hrs * 40) 4,00,000	(2,000 Hrs * 40) 80,000	(3,000 Hrs * 40) 1,20,000
Overhead absorbed	(5,000 Hrs * 25) 1,25,000	(6,000 Hrs * 25) 1,50,000	(10,000 Hrs * 25) 2,50,000	(2,000 Hrs * 25) 50,000	(3,000 Hrs * 25) 75,000
Total Cost	3,33,000	4,50,000	7,30,000	1,50,000	2,07,000

Notes, Assumptions & Working Notes :-

i) Labor cost is find out by multiplying Labor Hours with labor rate per hour.

ii) Overheads are absorbed on the basis of direct labor hours used by each job. Under absorption costing overheads are absorbed on the basis of a predetermined rate, this rate is applied on actual absorption unit.

here in this question absorption unit is labor hours. predetermined rate of overhead = estimated overheads / estimated labor hours = $ 6,00,000 / 25,000 = $ 24 Per Labor Hour.

iii) Previous Year cost is not considered for Job 450 as cost for the year 2018 is only asked.