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	1,200	900
Applied overhead	1,520	960	720

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	850	170

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 25 percent, calculate Cairle’s sales revenue for August.
$

Answer 1

Solution 1:

Predetermined overhead rate = Applied overhead / Direct labor cost

check for Job 70 = $1,520 / $1,900 = 80% of direct labor cost

Hence predetermined overhead rate = 80% of direct labor cost

Solution 2:

Job Cost Sheet - Cairle Company
Particulars	Job 70	Job 71	Job 72	Job 73	Job 74	Job 75	Job 76	Total
Beginning Work In Process:
Direct material	$1,700.00	$2,000.00	$850.00					$4,550.00
Direct labor	$1,900.00	$1,200.00	$900.00					$4,000.00
Applied overhead (80% of direct labor)	$1,520.00	$960.00	$720.00					$3,200.00
Beginning Work in Process	$5,120.00	$4,160.00	$2,470.00					$11,750.00
For August:
Direct material	$800.00	$1,235.00	$3,600.00	$5,000.00	$300.00	$560.00	$80.00	$11,575.00
Direct labor	$1,000.00	$1,400.00	$2,200.00	$1,800.00	$600.00	$850.00	$170.00	$8,020.00
Applied overhead (80% of direct labor)	$800.00	$1,120.00	$1,760.00	$1,440.00	$480.00	$680.00	$136.00	$6,416.00
Total Cost added in August	$2,600.00	$3,755.00	$7,560.00	$8,240.00	$1,380.00	$2,090.00	$386.00	$26,011.00
Ending balance of each Job (August 31)	$7,720.00	$7,915.00	$10,030.00	$8,240.00	$1,380.00	$2,090.00	$386.00	$37,761.00
Status on August 31	Finished (Unsold)	In Process	Finished (Sold)	Finished (Unsold)	In Process	Finished (Sold)	In Process
August 31 cost included in	Finished goods inventory	Work In Process Inventory	Cost of goods sold	Finished goods inventory	Work In Process Inventory	Cost of goods sold	Work In Process Inventory

Solution 3:

Ending balance of Work in Process as of August 31 = Cost of Job 71, 74 and 76

= $7,915 + $1,380 + $386 = $9,681

Solution 4:

Cost of goods sold for august = Cost of job 72 and 75 = $10,030 + $2,090 = $12,120

Solution 5:

Cairle’s sales revenue for August = Cost of goods sold + 25% markup on cost

= $12,120 + $12,120*25% = $15,150

Solution