Question

10) Under Pick Co.'s job-order costing system, manufacturing overhead is applied to work- in-process using a predetermined annual overhead rate. During January, Pick's transactions included the following: Direct materials issued to production $90,000 Indirect materials issued to production 8,000 Manufacturing overhead incurred $125,000 Manufacturing overhead applied 113,000 Direct labor cost 107,000 Pick had neither beginning nor ending work-in-process inventory. What was the cost of jobs completed in January? a) $302.000 b) $310,000 c) $322,000 d) $330,000

Answer 1

Choice "B" is correct. Cost of jobs completed (or cost of goods manufactured) equals direct materials used + direct labor + overhead applied + Beginning Work In Progress − Ending Work In Progress. In this case, the calculation is:

Direct Materials (90,000) + Overhead applied (113,000) + Direct Labour (107,000) = $310,000

Indirect materials ($8,000) are included in the actual overhead incurred. COGM uses applied overhead, not actual overhead. The underapplied overhead of $12,000 ($125,000 − $113,000) would normally be closed out to cost of goods sold unless considered material and then it would be allocated pro rata to the ending balances of Work In Progress, finished goods inventory, and COGS.Choice "d" is incorrect. Cost of jobs completed (or cost of goods manufactured) equals direct materials used + direct labor + overhead applied + beginning Work In Progress − ending Work In Progress.Choice "c" is incorrect. Cost of jobs completed (or cost of goods manufactured) equals direct materials used + direct labor + overhead applied + beginning Work In progress − ending Work In Progress.Choice "a" is incorrect. Cost of jobs completed (or cost of goods manufactured) equals direct materials used + direct labor + overhead applied + beginning Work In Progress − ending Work In Progress