Question

Jackson Company applies overhead to products using a pre-determined rate
of $11.20 per direct labor hour.

During 2019, Jackson Company began work on three jobs. Information
relating to these three jobs appears below:

                                  Job #359      Job #360      Job #361
direct materials ..............    $98,000       $75,000       $91,000
direct labor cost .............    $98,600       $79,900       $86,700
direct labor hours ............      5,800         4,700         5,100

By the end of 2019, job #359 and job #361 had been completed. Job #360
was not completed by the end of 2019. Additionally, by the end of 2019,
job #361 had been sold while job #359 was not sold. Jackson Company had
total actual overhead cost of $169,000 during 2019.

Calculate the cost of goods sold reported by Jackson Company for 2019
after the overhead variance has been closed.

Answer 1

Solution:

Primary Working:

	Job 359	Job 360	Job 361	Total
Direct materials	$98,000	$75,000	$91,000	$264,000
Direct labor Cost	$98,600	$79,900	$86,700	$265,200
Applied Manufacturing Overhead (Direct labor hours x $11.20)	$64,960	$52,640	$57,120	$174,720
Total Manufacturing Cost	$261,560	$207,540	$234,820	$703,920
Status at the end of 2019	Completed and Not Sold	Not Completed	Completed and Sold
Cost of Goods Sold before overhead adjustment (Cost of Job 361 Since it is sold)				$234,820
Less: Over-applied overhead (refer Note)				($5,720)
Cost of Goods Sold to be reported for 2019 after overhead variance has been closed				$229,100

Note -- Calculation of Overhead Variance:

Total Applied Manufacturing Overhead = $174,720

Actual Overhead Incurred = $169,000

Applied Overhead is higher than actual incurred overhead, it means the overhead are overapplied.

Over Applied Overhead =$174,720 - $169,000 = $5,720

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