Question

M UUT LAUT UT the inventory accounts as of April 30. arrise 5.14 Predetermined Overhead Rate, Application of Overhead to Jobs, Job Cost, Unit Cost On August 1, Cairle Company's work-in-process inventory consisted of three jobs with the following costs: Job 70 Job 71 Job 72 Direct materials Direct labor Applied overhead $1.600 1.900 1.425 $2.000 1.300 975 $850 900 675 During August, four more jobs were started. Information on costs added to the seven jobs dur- ing the month is as follows: Job 70 Job 71 Job 72 Job 73 Job 74 Job 75 Job 76 Direct materials $ 800 $1,235 $3,550 $5,000 $300 $560 $ 80 Direct labor 1,000 1,400 2.200 1.800 600 860172 Belore the end of August, Jobs 70, 72, 73, and 75 were completed. On August 31, Jobs 72 and 75 were sold. Required: Calculate the predetermined overhead rate based on direct labor cost. Calculate the ending balance for each job as of August 31. ulate the ending balance of Work in Process as of August 31. Calculate the cost of goods sold for August. 1ssuming that Cairle prices its jobs at cost plus 20 percent, calculate Cairle's sales revenue 5. Assuming that for August.

Answer 1

1) Calculation Predetermined Overhead Rate

Predetermined overhead rate based on direct labour cost = Overheads absorbed amount / Direct Labour cost

	Job 70	Job 71	Job 72
Direct Labour cost	1,900	1,300	900
Applied Overheads	1,425	975	675
Overhead Absorption Rate	75%	75%	75%

2) Ending balance for each Job as at 31st August

Job 73 Job 74 Job 75 Job 76 Particulars Op WIP Direct Materials Op WIP Direct Labour Op WIP Applied Overheads Direct materials August Direct Labour August Applied Overheads August Ending balance as at 31st August Job 70 Job 71 1,600 2,000 1,900 1,300 1,425 975 800 1,235 1,000 1,400 750 1,050 7,475 7,960 Job 72 850 900 675 3,550 2,200 1,650 9,825 300 80 560 860 600 172 5,000 1,800 1,350 8,150 1,350 2,065 381

3) Ending balance of Work in process as at 31st August

As given in question only Job No 71, 74 & 76 are not yet completed as at 31st August. Hence the ending balance of work in process is as below:-

Job 74 Job 76 Total 2,000 1,300 975 Particulars Op WIP Direct Materials Op WIP Direct Labour Op WIP Applied Overheads Direct materials August Direct Labour August Applied Overheads August Ending balance as at 31st August Job 71 2,000 1,300 975 1,235 1,400 1,050 7,960 300 600 450 450 1,350 80 1721 129 129 381 1,615 2,172 1,629 9,691

4) Computation of cost of good sold

Cost of goods sold is computed for those jobs which have been sold out/billed. And as per the given question only Job No 72 & 75 are sold. Hence the cost of goods sold is calculated as follows:-

Total 850 900 Particulars Op WIP Direct Materials Op WIP Direct Labour Op WIP Applied Overheads Direct materials August Direct Labour August Applied Overheads August Ending balance as at 31st August Job 72 Job 75 850 900 675 3,550 560 2,200 860 1,650 9,825 2,065 4.110 645 3,060 2,295 11,890