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 $1,700 $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: Job 70 Job 71 Job 72 Job 73 Job 74 Job 75 Job 76 Direct materials $800 1,000 $1,235 1,400 $3,500 2,200 $5,000 1,800 $300 600 $560 850 $80 170 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 $1,300. 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

Answer 1

Ans.

Working Notes

1.

Predetermined overhead = Overhead / Labor cost

We can take data of any job's opening work in progress. (taking data of Job 70)

Predetermined overhead rate = $1,520 / $1,900 = $0.80

2.

Computation of ending balance of each job

	Job 70	Job 71	Job 72	Job 73	Job 74	Job 75	Job 76
Direct Material	$2,500 ($1,700 + $800)	$3,235 ($2,000 + $1,235)	$4,350 ($850 + $3,500)	$5,000	$300	$560	$80
Direct Labor	$2,900 ($1,900 + $1000)	$2,700 ($1,300 + $1,400)	$3,100 ($900 + $2,200)	$1,800	$600	$850	$170
Applied Overhead ($0.80 * Direct Labor)	$2,320	$2,160	$2,480	$1,440	$480	$680	$136
Total Balance	$7,720	$8,095	$9,930	$8,240	$1,380	$2,090	$386

3.

Cost of goods sold =

Cost of goods sold for August consists of Jobs 72 and 75:

Cost of Job 72 .................$ 9,930

Cost of Job 75 ................ $ 2,090

Cost of goods sold ........ $ 12,020

4.

Sales Revenue = Cost of goods sold * (1 + 0.15)

Sales Revenue = $12,020 * (1.15) = $ 13,823

Carlie Company
Income Statement
For the month of August
Sales	$           13,823.00
Cost of Goods Sold	$           12,020.00
Gross Margin	$             1,803.00
Selling and Administrative Expenses	$             1,300.00
Operating Income	$                 503.00