Question

Job Costs Using a Plantwide Overhead Rate Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $280,000, and budgeted direct labor hours were 16,000. The average wage rate for direct labor is expected to be $35 per hour. During June, Naranjo Company worked on four jobs. Data relating to these four jobs follow: Job 39 Job 40 Job 41 Job 42 Beginning balance $22,400 $35,100 $17,100 $1,900 Materials requisitioned 19,200 21,800 12,700 12,100 Direct labor cost 10,300 18,900 7,350 3,000 Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 110 percent of cost. (Naranjo had originally developed Job 40 to order for a customer; however, that customer was near bankruptcy and the chance of Naranjo being paid was growing dimmer. Naranjo decided to hold Job 40 in inventory while the customer worked out its financial difficulties. Job 40 is the only job in Finished Goods Inventory.) Jobs 41 and 42 remain unfinished at the end of the month.

Required:

1. Calculate the overhead rate based on direct labor cost.

% of direct labor cost

2. Set up a simple job-order cost sheet for all jobs in process during June.

Naranjo Company Job-Order Cost Sheets

Job 39 Job 40 Job 41 Job 42

Balance, June 1 $ $    $ $

Direct materials    $    $ $ $

Direct Labor $    $    $ $

Total $    $ $    $

3. What if the expected direct labor rate at the beginning of the year was $28 instead of $35? What would the overhead rate be? If required, round your overhead rate answer to one decimal place.

New budgeted direct labor cost = $

New overhead rate = % of direct labor cost

Answer 1

Req 1.
Estimated Overheads: $ 280,000
Direct Labour hours: 16000 DLH
Labour rate per hour: $ 35 per hour
Labour cost (16000hrs@35): $560,000
Pre-determined OH rate: Estimated Overheads / Direct labour cost *100
		280,000 /560,000 *100 = 50% of labour cost
Req 2:
			Job 39	Job 40	Job 41	JOB 42
Beginning Cost			22400	35100	17100	1900
Material			19200	21800	12700	12100
Labour			10300	18900	7350	3000
Overheads			5150	9450	3675	1500
(50% of labour cost)
Total Cost			57050	85250	40825	18500
Status			Sold	Finished Goods	WIP	WIP
Req 3
Estimated Overheads: $ 280,000
Direct Labour hours: 16000 DLH
Labour rate per hour: $ 28 per hour
Labour cost (16000hrs@28): $448,000
Pre-determined OH rate: Estimated Overheads / Direct labour cost *100
		$ 280,000 /448,000 *100 = 62.50%
New Budgeted labour cost			448,000
New OH rate:			62.50%	on direct labour cost