Question

NORTH DAKOTA CORPORATION (2-2)

NORTH DAKOTA CORPORATION does construction for residential customers and uses a job-order costing system to account for manufacturing operations. As of the beginning of February they had two jobs in process with the following work in process balances:

Job A123	Job A124
$ 10,300	$    8,800

During February, two additional jobs were started: A125 and A126. Job A123 was completed during month and sold, with the client being billed at the company’s customary rate of cost plus 30%.   Job A124 was built on a speculative basis and, while finished, was not yet sold. The remaining jobs were still in process at month’s end.

Construction costs for February are as follows:

		Job A123	Job A124	Job A125	Job A126
Direct materials		$    1,950	$    5,500	$    4,300	$    2,300
Direct labor cost		3,690	6,990	3,090	1,890

The company uses a normal costing system and applies overhead at the rate of $9 per direct labor hour. Direct labor rates average $15 per hour.

REQUIRED:

Determine the number of direct labor hours that were worked on each job for the month.

Job A123= 3,690 / 15 = 246

Job A124= 6,990 / 15 = 466

Job A125= 3,090 / 15 = 206

Job A126= 1,890 / 15 = 126

Compute the overhead applied to each job for the month

Job A123=

Prepare a simplified job-cost record for each job as of the end of February and post summary numbers to WIP, FG and CGS T-accounts (general ledger).

What were the work in process and finished goods inventory as of February 28?

What was the cost of goods manufactured for the month?

How much is the normal cost of goods sold?

Compute the sales and gross margin for February.

NOW ASSUME that the actual overhead for the month was $9,596. Was overhead over applied or under applied for the month? How is this handled?

NOW what is the adjusted cost of goods sold and gross margin on the GAAP income statement for February?

Answer 1

Overhead applied to each job for the month:

Job	DLH	Overhead rate per DLH	Overhead applied
Job A123	246	$9.00	$2,214
Job A124	466	$9.00	$4,194
Job A125	206	$9.00	$1,854
Job A126	126	$9.00	$1,134

Job Cost Record:

	Job A123	Job A124	Job A125	Job A126	Total
Beginning WIP	10300	8800			19100
Direct materials	1950	5500	4300	2300	14050
Direct labor	3690	6990	3090	1890	15660
Overheads applied	2214	4194	1854	1134	9396
Total cost $	18154	25484	9244	5324	58206

T-accounts:

Work in Process					Finished Goods					Cost of Goods Sold
Beg. Bal.	19100				Completed	43638	18154	Sold		FG sold	18154
Direct materials	14050	43638	Completed		End. Bal.	25484
Direct labor	15660
Overheads	9396
End. Bal.	14568

Inventory as of February 28:
Work in process	$14568
Finished goods	$25484

Cost of goods manufactured for the month: $43638

Normal cost of goods sold: $18154

Sales for February: Job A123
Job cost $	18154
Mark-up (30% x $18154)	5446
Sales price $	23600

Gross margin: $5446

Actual overheads $	9596
Overheads applied	9396
Underapplied overheads $	200

The underapplied overhead is adjusted to the cost of goods sold.

Adjusted cost of goods sold = $18154 + $200 = $18354

Gross margin = 30% x $18354 = $5506