Question

Job Costs Using a Plantwide Overhead Rate

Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $260,000, and budgeted direct labor hours were 20,000. The average wage rate for direct labor is expected to be $25 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	$23,700	$34,600	$17,000	$0
Materials requisitioned	18,900	21,400	8,350	12,000
Direct labor cost	10,000	18,000	3,000	2,900

Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 130 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 balance in Work in Process as of June 30.

$

2. Calculate the balance in Finished Goods as of June 30.

$

3. Calculate the cost of goods sold for June.

$

4. Calculate the price charged for Job 39.

$

5. What if the customer for Job 40 was able to pay for the job by June 30? What would happen to the balance in Finished Goods?

Finished Goods would decrease

What would happen to the balance of Cost of Goods Sold?

Cost of Goods Sold would increase

Answer 1

Allocation of Budgeted Overheads
Annual Budgeted Overheads	$260,000
Budgeted Overheads for June	$21,667
Direct Labor Cost - Job 39	$10,000
Direct Labor Cost - Job 40	$18,000
Direct Labor Cost - Job 41	$3,000
Direct Labor Cost - Job 42	$2,900
Total Direct Labor Cost for June	$33,900
Assignment of Overheads as percentage of direct labor
	Direct Labor Cost	Overhead Cost
Job 39	$10,000	$6,391
Job 40	$18,000	$11,505
Job 41	$3,000	$1,917
Job 42	$2,900	$1,854
Total	$33,900	$21,667
Computation of Total Costs
	Job 39	Job 40	Job 41	Job 42
Beginning Bal	$23,700	$34,600	$17,000	$0
Materials	$18,900	$21,400	$8,350	$12,000
Direct Labor	$10,000	$18,000	$3,000	$2,900
Overheads	$6,391	$11,505	$1,917	$1,854
Total Costs	$58,991	$85,505	$30,267	$16,754
1.
Balance in Work in Process as of June 30
It has been stated in the question that Jobs 41 and 42 remain
unfinished,hence, the balance of work in process would be the
total of costs incurred in these two jobs
Total Costs incurred in Job 41	$30,267
Total Costs incurred in Job 42	$16,754
Balance of Work in Process as of June 30	$47,021
2.
Balance in Finished Goods as of June 30
The goods manufactured in Job 40 are complete and would be
classified as finished goods. Since,the goods have not been sold
as upto June 30,they would be classified as Finished Goods
Inventory as on June 30
Total Costs incurred in Job 40	$85,505
Balance of Finished Goods as of June 30	$85,505
3.
Cost of Goods Sold for June
The goods manufactured in Job 39 are complete and have been
sold in June,hence,the cost of goods in Job 39 would be classified
under cost of goods sold
Total Costs incurred in Job 39	$58,991
Total Cost of Goods Sold for June	$58,991
4.
Price charged for Job 39
Price charged for Job 39 is 130% of cost
Total Costs incurred in Job 39	$58,991
Price charged as % of costs	130%
Price charged for Job 39	$76,688
5.
If the goods manufactured in Job 40 are sold, the following entry
would be made in the books
Account Title	Debit	Credit
Cost of Goods Sold	$85,505
Finished Goods		$85,505
As evident from the above journal entry
The Finished Goods balance would decrease by $ 85,505
The Cost of Goods Sold would increase by $ 85,505