Question

Duke Company is a furniture manufacturer. At the end of November two jobs are in work-in-process. The following table provides the information about Jobs 401 and 402.

	Job 401	Job 402
Direct labor	$20,000	$25,000
Direct materials	$ 35,000	$ 20,000
Direct labor hours	2,000	2,500
Machine hours	1,500	3,000

The predetermined overhead rate for Duke is based on budgeted direct labor hours, 100,000, and the budgeted overhead cost, $750,000. The actual data for November are:

Direct Labor Hours	15,000
Overhead	$95,500
Finished Goods Inventory	$60,000
Cost of Goods Sold	$400,000

There is no beginning inventory. Duke prorates overhead variance to FG, WIP, COGS based on total costs in these accounts.

(a) Determine the predetermined overhead application rate and the cost of WIP before overhead variance proration.

(b) Determine the overhead variance and prorate the variance to WIP, FG, and COGS.

Chapter 9 P2: Thomson Company manufactures mosquito repellant. There are multiple processing departments. The following information comes from the first processing department:

Beginning WIP	None
Units started in November	40,000
Units completed and transferred out	36,000
Ending work in process (units)	4,000 (60% complete for conversion)
Conversion cost incurred in November	$ 19,200
Material cost incurred in November (raw material is added in the beginning of the process)	$16,000

Determine the cost of goods transferred out and the cost of ending inventory of WIP for November.

Answer 1

(a)	Predetermined overhead application rate
	Budgeted overhead cost	$750,000
	Budgeted direct labor hours	100,000
	Predetermined rate per DLH	$7.50
	Cost of Work In Process
		Job 401	Job 402	Total
	Direct labor	$20,000	$25,000	$45,000
	Direct materials	$35,000	$20,000	$55,000
	Applied overheads	$15,000	$18,750	$33,750
	Total cost of WIP	$70,000	$63,750	$133,750
(b)	Overhead Variance
	Actual overhead	$95,500
	Applied Overheads (15000 DLH x $7.50)	$112,500
	Overhead Variance	-$17,000
	Prorate the Variance
		Total cost	Variance	Net Cost
	Finished Goods Inventory	$60,000	-$1,718	$58,282
	Cost of goods sold	$400,000	-$11,453	$388,547
	Work in Process	$133,750	-$3,829	$129,921
		$593,750	-$17,000	$576,750
Chapter 9 P2	Cost of goods transferred out
		Material Cost	Conversion Cost
	Cost incurred during the month	$16,000	$19,200
	Equivalent units	40000	38400
	Cost per equivalent unit	$0.40	$0.50
	Units transferred out	36000
	Material cost (36000 x 0.40)	$14,400
	Conversion cost (36000 x 0.50)	$18,000
	Total Cost	$32,400
	Cost of Ending inventory
	Ending Inventory	4000
	Material cost (4000 x 0.40)	$1,600
	Conversion cost (2400 x 0.50)	$1,200
	Total Cost	$2,800
	Equivalent units for Conversion
	Ending Inventory	4000
	Percentage of completion	60%
	Equivalent units for Conversion (4000x60%)	2400