Question

Garcia, Inc. uses a job-order costing system for its products, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The company applies manufacturing overhead using machine hours in the Machining Department and direct-labor cost in the Assembly Department. The following information relates to the year just ended:

	Machining Department			Assembly Department
Budgeted manufacturing overhead	$	4,000,000		$	3,080,000
Actual manufacturing overhead		4,270,000			3,040,000
Budgeted direct-labor cost (based on practical capacity)		1,500,000			5,600,000
Actual direct-labor cost		1,450,000			5,780,000
Budgeted machine hours (based on practical capacity)		400,000			100,000
Actual machine hours		425,000			110,000

The data that follow pertain to job no. 775, the only job in production at year-end.

	Machining Department			Assembly Department
Direct material	$	24,500		$	6,800
Direct labor	$	27,800		$	58,700
Machine hours		360			150

Selling and administrative expense amounted to $2,500,000.

2. Compute the cost of the company’s year-end work-in-process inventory.

	Total cost

Answer 1

Job No 775
Calculation of Total cost of Work in Progress Inventory
	$	$
Direct Material
Machining Department	24,500
Assembly Department	6,800	31,300
Direct Labour
Machining Department	27,800
Assembly Department	58,700	86,500
Manufacturing Overheads
Machining Department ( Based on Machine Hours)	3,617
Assembly Department ( Based On Direct Labour Cost)	30,873	34,490
Total Cost For Job No 775 ( Work in progress)		152,290

Calculation of Ovrerhead Allocation Rate

Machining Department : Total Actual Manufacturing Overhead/ Actual Machine Hours = 4270,000/425,000 = $10.05/ Machine Hours

Assembly Department : Total Actual Manufacturing Overhead/ Actual Direct Labour Costs = 3040,000/5780,000 = .53/ Direct Labour Cost