Job Costs Using a Plantwide Overhead Rate
Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $390,000, and budgeted direct labor hours were 26,000. 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 | $23,300 | $34,800 | $19,700 | $500 |
Materials requisitioned | 19,800 | 20,400 | 10,600 | 12,600 |
Direct labor cost | 10,900 | 17,500 | 5,250 | 3,500 |
Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 115 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. 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 | $ | $ | $ | $ |
Beginning balance, Work-In-Process | ||||
Cost of goods sold | ||||
Ending balance, Work-in-Process | ||||
Total | $ | $ | $ | $ |
2. 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 overhead rate answer to one decimal place.
New budgeted direct labor cost = $_____
New overhead rate = ______ % of direct labor cost
How would the cost of the jobs be affected?
1)Total Direct Labor cost = Direct labor hours * Rate per hour
= 26000 *30
= 780000
Overhead Rate =Estimated overhead /estimated direct labor cost
= 390000 / 780000
= .50 or 50% of direct labor cost
Naranjo Company Job-Order Cost Sheets |
||||
Job 39 | Job 40 | Job 41 | Job 42 | |
Balance, June 1 | 23300 | 34800 | 19700 | 500 |
Material requisitioned | 19800 | 20400 | 10600 | 12600 |
Direct labor cost | 10900 | 17500 | 5250 | 3500 |
Overhead applied | 10900*50%= 5450 | 17500*50%= 8750 | 5250*50%=2625 | 3500*50%= 1750 |
Total | 59450 | 81450 | 38175 | 18350 |
2)
New budgeted direct labor cost = 26000 * 24= 624000
New Overhead rate = 390000/ 624000
= 62.5 % of Direct labor cost
With increase in overhead application rate from 50% to 62.5% ,Overhead applied will get increase as a result Total cost of job will increase.
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