Question

Predetermined Overhead Rate, Application of Overhead to Jobs, Job Cost, Unit Cost

On August 1, Cairle Company’s work-in-process inventory consisted of three jobs with the following costs:

	Job 70	Job 71	Job 72
Direct materials	$1,700	$2,000	$850
Direct labor	1,900	1,400	900
Applied overhead	1,330	980	630

During August, four more jobs were started. Information on costs added to the seven jobs during the month is as follows:

	Job 70	Job 71	Job 72	Job 73	Job 74	Job 75	Job 76
Direct materials	$800	$1,235	$3,600	$5,000	$300	$560	$80
Direct labor	1,000	1,400	2,200	1,800	600	900	180

Before the end of August, Jobs 70, 72, 73, and 75 were completed. On August 31, Jobs 72 and 75 were sold.

Required:

1. Calculate the predetermined overhead rate based on direct labor cost.
% of direct labor cost.

2. Calculate the ending balance for each job as of August 31.

	Ending Balance
Job 70	$
Job 71	$
Job 72	$
Job 73	$
Job 74	$
Job 75	$
Job 76	$

3. Calculate the ending balance of Work in Process as of August 31.
$

4. Calculate the cost of goods sold for August.
$

5. Assuming that Cairle prices its jobs at cost plus 10 percent, calculate Cairle’s sales revenue for August.
$

Answer 1

Answer : (1) Calculation of predetermined overhead rate based on direct labor cost.

Predetermined overhead = Applied Overhead / Direct Labor cost

		Job 70	Job 71	Job 72
Applied overhead	a	1,330	980	630
Direct labor	b	1,900	1,400	900
Predetermined overhead Rate	(a/b) x 100	70%	70%	70%

So, Predetermined overhead rate based on direct labor cost = 70%

(2) Calculation of ending balance for each job as of August 31.

Particulars	Job 70	Job 71	Job 72	Job 73	Job 74	Job 75	Job 76
Opening WIP:
Direct materials	$1,700	$2,000	$850
Direct labor	$1,900	$1,400	$900
Applied overhead	$1,330	$980	$630
Total opening WIP	$4,930	$4,380	$2,380
Add : Direct materials	$800	$1,235	$3,600	$5,000	$300	$560	$80
Add: Direct labor	$1,000	$1,400	$2,200	$1,800	$600	$900	$180
Add : overhead Applied ( 70% of direct labour)	$700	$980	$1,540	$1,260	$420	$630	$126
Ending balance	$7,430	$7,995	$9,720	$8,060	$1,320	$2,090	$386

(3) Calculation of Ending balance of Work in Process as of August 31

Job no.	Ending WIP
Job 71	$7,995
Job 74	$1,320
Job 76	$386
Total	$9,701

So, Ending balance of Work in Process as of August 31 = $ 9,701

(4) Calculation of cost of goods sold for August

Job no.	Cost of goods sold
Job 72	$9,720
Job 75	$2,090
Total	$11,810

So, Cost of goods sold for August = $ 11,810

(5) Calculation of Cairle’s sales revenue for August.

Cost of goods sold = $ 11,810

Sales price = Cost + 10%

Sales revenue = $ 11,810 + 10% = $ 12,991

So, Cairle’s sales revenue for August = $ 12,991