Question

Lorenzo Company applies overhead to jobs on the basis of direct materials cost. At year-end, the Work in Process Inventory account shows the following. Work in Process Inventory Date Explanation Debit Credit Balance Dec. 31 Direct materials cost 1,200,000 1,200,000 31 Direct labor cost 220,000 1,420,000 31 Overhead applied 564,000 1,984,000 31 To finished goods 1,902,080 82,000 1. Determine the predetermined overhead rate used (based on direct materials cost). 2. Only one job remained in work in process inventory at December 31. Its direct materials cost is $27,000. How much direct labor cost and overhead cost are assigned to this job?

Answer 1

Lorenzo Company
Work in Process Inventory
Date	Explanation	Debit	Credit	Balance
Dec-31	Direct Material	$                      12,00,000.00		$ 12,00,000.00
	Direct Labor cost	$                         2,20,000.00		$ 14,20,000.00
	Overhead applied	$                         5,64,000.00		$ 19,84,000.00
	To Finished goods		$ 19,02,000.00	$       82,000.00
	Predermined Overhead rate=Estimated Overhead/Estimated overhead base
	Numerator/	Denominator
	Overhead Cost/	Direct Material cost	Overhead rate
	$564000/	$                      12,00,000.00	47%
2)	Computation of Direct Labor & Overhead costs assigned to job
	Total cost of job in process	$                            82,000.00
	Less: Direct Material costs(given)	$                            27,000.00
	Less: Overhead applied($27000*47%)	$                            12,690.00
	Labor cost($82000-$27000-$12690)	$                            42,310.00