Question

Tata Motors produces trucks for commercial use. The company uses a normal job-order
costing system to calculate its cost of goods manufactured. On January 01, 2019, there was only one job
in process with the following costs:

Job A-1
Direct materials $ 5,000
Direct labour 15,000
Applied overhead 19,500
Total $39,000

The following balances were taken from the general ledger of the company as of January 1, 2019:
Direct materials inventory $35,000
Finished goods inventory (for Job D-1) $65,000
During the year 2016, the following events occurred:
Direct materials were purchased on account for $275,000
Two more jobs were started: Job B-1 and Job C-1.
Direct materials and direct labour costs incurred by each job in process during the year 2019 are as follows:

Job A-1 Job B-1 Job C-1
Direct Materials $150,000 $30,000 $10,000
Direct Labour $150,000 $35,000 $15,000
The company incurred the following actual factory overhead during the year:
Factory rent $120,000
Factory supplies $ 45,500
Indirect labour $ 75,750
Jobs A-1 and B-1 were completed, and Jobs D-1 and A-1 were sold.
a. Calculate the total applied overhead for the year 2019 if the factory overhead costs are applied to
each job on the basis of direct labour dollars. [2 Marks]
b. Determine whether overhead is over-applied or under-applied. By how much? [2 Marks]
c. Prepare simple job order cost sheets for jobs A-1, B-1, and C-1. [3 Marks]
d. Prepare a schedule of cost of goods sold, identifying both normal and adjusted cost of goods sold, for
the year ended December 31, 2019. [6 Marks]

Answer 1

(a)

The factory overheads is apportioned to each job on the basis of Direct labour.

In Jan 2019, only one Job is in process - Job A 1

Total Cost of Job A 1 iin Jan 2019 is $ 39,500

The accumulated Materials as on 1 Jan 2019 = $ 35,000

FG Stock of Job D 1 = $ 65,000

Fresh Jobs Started in the year 2019 are Job B1 & Job C1

Direct Material Incurred for the Jobs in Progress are as below:-

Direct Material Direct Labour

Job A1 - $ 1,50,000 $ 1,50,000

Job B1 - $ 30,000 $ 35,000

Job C1 - $ 10,000 $ 15,000

Total Overheads Incurred by the company during the year = $ 120000+45500+75750

= $ 2,41,250

Overheads Applied to jobs done during 2019 are as below:-

Job A1 - 241250 (150000/200000)

= $ 180938

Overhead appoertined to Job A1 in Jan 2019 = $ 19,500

Job B1 = 241250 (35000/200000)

= $ 42219

Job C1 = 241250 (15000/200000)

= $ 18,094

(B) Determining whether Over head is Over applied or Under Applied

The Over head is over applied by $ 19500 to Job A1

(C) Job Order Cost sheet for Job A1, Job B1 & Job C1

(D) Schedule of Cost of goods sold for Year ended Dec 31 2019

Sold Jobs are Job A1 & Job D 1

Normal Cost of Job A1 = $ 4,80,938

Adjusted Cost of Job A1 = $ 5,00,438  

Direct Material Stock as on Dec 31 2019 is as below:-

Cost of Job D 1 = $ 65,000