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Question 8)

Question 8 Red Fire Inc. produces fire trucks. The company uses a normal job-order costing system to calculate its cost of goods manufactured. The company's policy is to price its job at cost plus 30% markup. On January 1, 2020, there was only one job in process, with the following costs: Direct materials Direct labour Applied overhead Total Job 200 $14,500 18,000 27,000 $59,500 The following balances were taken from the company's general ledger as of January 1, 2020: Direct materials inventory Finished goods inventory (for Job 100) $45,400 85,500 During the year 2020, the following events occurred: Direct materials were purchased on account for $379,000 Two more jobs were started: Job 300 and Job 400. Direct materials and direct labour costs incurred by each job in process during the year 2020 were as follows: Direct materials Direct labour Job 200 $150,800 134,800 Job 300 $45,400 45.400 Job 400 $36,000 25,600 The company incurred the following actual factory overhead during the year: Factory rent Factory supplies Indirect labour $135,000 55,200 84,750 Jobs 100 and 200 were sold. Jobs 200 and 300 were completed. Calculate the total applied overhead for the year 2020. The factory overhead costs are applied to each job on the basis of direct labour dollars. Total overhead applied S

Answer 1

Overhead rate = Applied overhead/Direct labor cost = $27000/$18000 = 150% of direct labor cost

Total overhead applied = 150% x Total direct labor cost = 150% x ($134800 + $45400 + $25600) = 150% x $205800 = $308700

Job No. 200
Cost of completed job
Direct materials ($14500 + $150800)	165300
Direct labor ($18000 + $134800)	152800
Manufacturing overhead (150% x $152800)	229200
Total cost	547300
Job No. 300
Cost of completed job
Direct materials	45400
Direct labor	45400
Manufacturing overhead	68100
Total cost	158900
Job No. 400
Cost of completed job
Direct materials	36000
Direct labor	25600
Manufacturing overhead	38400
Total cost	100000

Manufacturing overhead applied:
Overhead incurred during the month ($135000 + $55200 + $84750)	274950
Manufacturing overhead applied	308700
Over applied overhead	33750

RED FIRE INC.
Statement of Cost of Goods Sold
For the Year Ended December 31, 2020
Finished goods inventory, January 1 (Job 100)	85500
Cost of goods manufactured (Job 200 $547300 + Job 300 $158900)	706200
Cost of goods available for sale	791700
Less: Finished goods, December 31 (Job 300)	158900
Unadjusted cost of goods sold (Job 100 $85500 + Job 200 $547300)	632800
Less: Over-applied overhead	33750
Adjusted cost of goods sold	599050

Selling price of Job 200: $711490

	Job 200
Total cost	547300
Add: Markup (30% x $547300)	164190
Selling price $	711490

Ending balances:

Direct materials ($45400 + $379000 - $150800 - $45400 - $36000)	192200
Work in process (Job 400)	100000