Question

Job Costs Using a Plantwide Overhead Rate

Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $360,000, and budgeted direct labor hours were 24,000. The average wage rate for direct labor is expected to be $30 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	$25,500	$32,900	$16,800	$1,400
Materials requisitioned	19,400	23,400	8,700	15,700
Direct labor cost	10,500	20,500	3,350	6,600

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 overhead rate based on direct labor cost.

% of direct labor cost

Hide 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 $   $   $   $   Total $   $   $   $

3. What if the expected direct labor rate at the beginning of the year was $24 instead of $30? What would the overhead rate be? If required, round your answer to one decimal place.

% of direct labor cost

How would the cost of the jobs be affected?

- Select your answer -Applied overhead would increaseApplied overhead would decreaseApplied overhead would not changeCorrect 2 of Item 3

Answer 1

1]	Estimated direct labor cost = 24000*30 =	$     7,20,000
	Budgeted overhead	$     3,60,000
	Overhead rate = 360000/720000 =	50.00%	of Direct labor cost
2]		Job 39	Job 40	Job 41	Job 42
	Balance, June 1	$    25,500	$ 32,900	$   16,800	$     1,400
	Direct Material cost	$      9,400	$ 23,400	$     8,700	$   15,700
	Direct labor cost	$    10,500	$ 20,500	$     3,350	$     6,600
	Overhead assigned	$           5,250	$      10,250	$         1,675	$          3,300
	Total	$         50,650	$      87,050	$       30,525	$       27,000
3]	Estimated direct labor cost = 24000*24 =	$     5,76,000
	Budgeted overhead	$     3,60,000
	Overhead rate = 360000/576000 =	62.50%	of Direct labor cost
	How would the cost of jobs be affected?
	Applied overhead would not change.
	The reason is that, the direct labor cost will
	get reduced to the extent that the new
	overhead rate when applied to the revised
	cost of the jobs will yield the same OH
	assignment for the jobs.