Question

Lin Corporation uses a job order costing system and normal costing, with overhead being applied on the basis of direct labor cost. There were no jobs in process at the start of the period. During the month, the company worked on 3 jobs, with the following information:

	Alpha	Beta	Gamma
Direct Labor ($8/hour)	$24,000		$8,800
Direct Materials	$42,000	$61,000
Overhead Applied		$23,940	$6,160

During the month, only job Alpha was completed and transferred to finished goods inventroy. The ending balance in the work in process account is $148,650. The overhead control account had debit entries totalling $48,640 for the period.

1) What is the predetermined overhead allocation rate?

2) Compute the amount of overapplied or underapplied overhead for the period. Indicate both the amount and direction.

3) Compute the cost of direct materials issued to production for the month.

4) In three sentences or fewer, what is job order costing?

Answer 1

1	Predetermined overhead allocation rate	0.7	per direct labor cost	(6160/8800)
2	Total overhead applied	46900	(24000*0.7)+(23940+6160)
	Actual overhead	48640
	Overhead underapplied	1740
3		Beta	Gama
	Direct labor	34200	8800
	Direct Material	61000
	Overhead applied	23940	6160
	Total	119140	14960
	Total without direct material issued to Gamma	134100
	Total Work in process	148650
	Direct material for Gamma	14550	(148650-134100)
	Cost of direct materials issued to production for the month	117550	(42000+61000+14550)
4	Job order costing or job costing is a system for assigning manufacturing costs to an individual product or batches of products.
	Generally, the job order costing system is used only when the products manufactured are sufficiently different from each other.