Question

Income Statement 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 $1,500 $2,000 $850 Direct labor 1,900 1,300 900 Applied overhead 1,520 1,040 720 During August, four more jobs were started. Information on costs added to the seven jobs during the month is as follows: Direct materials Job 70 $800 1,000 Job 71 $1,235 1,400 Job 72 $3,600 2,200 Job 73 $5,000 1,800 Job 74 $300 600 Job 75 $560 850 Job 76 $80 180 Direct labor Before the end of August, Jobs 70, 72, 73, and 75 were completed. On August 31, Jobs 72 and 75 were sold. Cairle's selling and administrative expenses for August were $1,100. Assume that Cairle prices its jobs at cost plus 15 percent. Required: Prepare an income statement for Cairle Company for August. Cairle Company Income Statement For the Month of August

Answer 1

Solution:

Overhead allocation rate = $1520/ 1900 = 80%

Cost of Job 72 = (850+900+720) + (3600+2200 + 2200*80%) = $10,030

Cost of Job 75 = 560 + 850 + 850*80% = $2,090

Cost of goods sold = Cost of Job 72 + cost of Job 75 = $10030 + $2090 = $12,120

Sales = Cost + 15% = $12120*115% = $13,938

Income statement
Sales Revenue	13938
Less: Cost of goods sold	12120
Gross profit	1818
Less: Selling and administrative expenses	1100
Net Income	718