Question

Marcelino Co.'s March 31 inventory of raw materials is $87,000. Raw materials purchases in April are $530,000, and factory payroll cost in April is $378,000. Overhead costs incurred in April are: indirect materials, $59,000; indirect labor, $21,000; factory rent, $36,000; factory utilities, $21,000; and factory equipment depreciation, $56,000. The predetermined overhead rate is 50% of direct labor cost. Job 306 is sold for $650,000 cash in April. Costs of the three jobs worked on in April follow.

	Job 306				Job 307				Job 308
Balances on March 31
Direct materials		$	28,000			$	45,000
Direct labor			24,000				16,000
Applied overhead			12,000				8,000
Costs during April
Direct materials			137,000				215,000			$	105,000
Direct labor			101,000				151,000				105,000
Applied overhead			?				?				?
Status on April 30	Finished (sold)				Finished (unsold)					In process
Compute gross profit for April. Show how to present the inventories on the April 30 balance sheet.

Answer 1

Answer :

Applied Overhead = 50% * direct labor cost

1. Applied overhead for all 3 jobs for April
2. Beginning work-in processes for jobs 306 and 307 for April
3. Cost transferred to Finished Goods for Jobs 306 and Job 307
4. Ending Work in process for jobs 308

are calculated as below:

Job sold in April is Job 306 and the same is sold for $650,000 cash.

Hence Gross profit for April:

Sales = $650,000

Cost of Sales = $352,500

Gross Profit = $650,000 - $352,500 = $297,500

Hence:

Gross profit for April = $297,500

Inventories on the April 30 will include:

Finished Goods (Job 307) = $510,500

Work in Process (Job 308) = $262,500

Raw Material = Beginning balance of April + Purchases - Direct material Issued to Jobs and Indirect material issued in April =  $87,000 + $530,000 - ($137,000 + $215,000 + $105,000 + $59,000) = $101,000

In Balance sheet as at April 30 it will be shown under Current Assets as follows: