Question

Job Costs Using a Plantwide Overhead Rate Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $180,000, and budgeted direct labor hours were 18,000. The average wage rate for direct labor is expected to be $20 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 $26,600 $34,200 $15,600 $1,700 Materials requisitioned 16,700 23,400 10,800 12,100 Direct labor cost 7,800 20,500 5,450 3,000 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.

Job Costs Using a Plantwide Overhead Rate Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $180,000, and budgeted direct labor hours were 18,000. The average wage rate for direct labor is expected to be $20 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 $26,600 $15,600 $1,700 Beginning balance Materials requisitioned Direct labor cost $34,200 23,400 16,700 10,800 12,100 7,800 20,500 5,450 3,000 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. Calculate the balance in Work in Process as of June 30. 2. Calculate the balance in Finished Goods as of June 30. $ 3. Calculate the cost of goods sold for June. $ 4. Calculate the price charged for Job 39. Round your answer to the nearest cent. 5. What if the customer for Job 40 was able to pay for the job by June 30? What would happen to the balance in Finished Goods? What would happen to the balance of Cost of Goods Sold?

Answer 1

1	Balance in Work in process as of June 30            [Refer working note 2]	$52,875
2	Balance in Finished goods as of June 30              [Refer working note 3]	$88,350
3	Cost of goods sold for June 30                             [Refer working note 4]	$55,000
4	Price charged for Job 39                                      [Refer working note 5]	$63,250
5	Finished goods would decrease
	Cost of goods sold would increase

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Working note 1 - Calcualation of Overhead rate
Estimated overhead Cost	$180,000
Estimated labor cost [Estimated labor hours x Wage rate = 18,000 hours x $20 per hour]	$360,000
Overhead Rate          [(Estimated overhead Cost / Estimated labor cost ) x 100 = ($180,000 / $360,000) x 100	50%

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Working note 2 - Calculation of Balance in Work in process as of June 30
Total cost incurred for Job 41 until June 30             [Refer working note 6]	$34,575
Total cost incurred for Job 42 until June 30              [Refer working note 6]	$18,300
Work in process                                                         [34,575 + $18,300]	$52,875

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Working note 3 - Calculation of Balance in Finished goods as of June 30
The only job that is completed and unsold at June 30 is Job 40
Total cost incurred for Job 40                [Refer working note 6]	$88,350

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Working note 4 - Calculation of Cost of goods sold for June 30
The only job that is completed and sold in June is Job 39
Total cost incurred for Job 39                [Refer working note 6]	$55,000

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Working note 5 - Calculation of Price charged for Job 39
Total cost incurred for Job 39      [Refer working note 6]	$55,000
Price charged for Job 39              [Total cost incurred for Job 39 x 115% = $55,000 x 115%]	$63,250

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Working note 6 - Calculation of total cost incurred for each job
`	Job 39	Job 40	Job 41	Job 42
Beginning balance (a)	$26,600	$34,200	$15,600	$1,700
Manufacturing costs incurred during June:
Materials requisitioned (b)	$16,700	$23,400	$10,800	$12,100
Direct labor labor (c)	$7,800	$20,500	$5,450	$3,000
Overhead applied      [Direct labor cost x Overhead rate]          (d)	$3,900. [$7,800 x 50%]	$10,250 [$20,500 x 50%]	$2,725 [$5,450 x 50%]	$1,500 [$12,100 x 50%]
Total manufacturing costs incurred during June           (e = b + c + d)	$28,400	$54,150	$18,975	$16,600
Total cost incurred                                                          (a + e)	$55,000	$88,350	$34,575	$18,300