Question

Star Company’s accountants estimate total overhead for each month will be $64,000. They will allocate overhead on the basis of direct labour cost. During the current month, three jobs were worked on:

Job 745, Job 746, Job 747

Direct material: $36,000, $56,000, $24,000

Direct labour $56,000, $72,000, $40,000,

Job 745 was completed and sold, Job 746 was completed and Job 747 is still in process.

Budgeted direct labour cost for the month was $160,000 and actual overhead was $65,800.

Assuming overhead was $2,000 underapplied and that this amount is considered material, the balance of work in process after allocation of the underapplied overhead based on overhead charged to the accounts during the period is:

Answer 1

(b) (c)=(a) + (b) (d) Job Status Direct material Cost without Overhead Direct labor Overhead Applied (c) + (d) Total cost including overhead $114,400 $156,800 $80,000 $351,200 745 746 747 Total cost Sold Completed WIP $36,000 $56,000 $24,000 $56,000 $72,000 $40,000 $92,000 $128,000 $64,000 $284,000 $22,400 $28,800 $16,000 $67,200 [Overhead applied = $56000 x $0.4 = $22400] (Overhead applied = $72000 x $0.4 = $28800] [Overhead applied = $40000 x $0.4 = $16000] It is given that there is an under-applied overhead $2,000As under-applied overhead is material, it shall be allocated between three type of inventory proportionately based on cost without overhead: Workings: To Cost of goods sold (Job 745) To Finished goods (Job 746) To Work in process (Job 747) $647.89 ($2000 x ($92000 / $284000)] $901.41 ($2000 x ($128000 / $284000)] $450.70 [$2000 x ($64000 / $284000)] Estimated overhead cost Estimated direct labor cost Overhead rate per direct labor cost $64,000 $160,000 $0.4 ($64000 / $160000] When under-applied overhead is allocated to work in process, its current balance shall be increased by amount of under-applied overhead allocated to work in process. Therefore, Total cost of work in process (Job 747) before allocating under-applied overhead Add: Under-applied overhead cost allocated to work in process (as calculated above) Balance of work in process after allocation of the underapplied overhead $80,000.00 [Ref: Job schedule presented above] $450.70 $80,450.70 or = $80,451 [$80000.00 + $450.70]