Question

1. Job Costs Using a Plantwide Overhead Rate

   Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $287,500, and budgeted direct labor hours were 23,000. The average wage rate for direct labor is expected to be $25 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	$26,100	$32,800	$18,500	$900
   Materials requisitioned	16,000	23,000	10,900	12,500
   Direct labor cost	7,100	20,100	5,550	3,400

   Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 120 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. Computation of balance in Work in Process as of June 30.

Particular	Job 41	Job 42
Beginning balance	$18,500	$900
Material Requisitioned	$10,900	$12,500
Direct labor cost	$5,550	$3,400
Overhead (Working Note)	$2,775	$1,700
Closing balance	$37,725	$18,500

Working Note: Computation of Overhead

$\begin{align*}\text{Overhead Rate Per Hour}&=\frac{\text{Budgeted Overhead}}{\text{Budgeted Direct Labor Hour}}\\ &=\frac{\$287,500}{23,000\;\text{direct labor hour}}\\&=\$12.5\;\text{per direct labor hour}\end{align*}$

Overhead for particular Job

$\begin{align*}\text{Job 41}&=\frac{\$5,550}{\$25\; \text{per hour}}\times\$12.5\;\text{per direct labor hour}\\&=\$2,775\\\text{Job 42}&=\frac{\$3,400}{\$25\; \text{per hour}}\times\$12.5\;\text{per direct labor hour}\\&=\$1,700\end{align*}$

2. Computation of balance in finished goods as of June 30

Particular	Job 40
Beginning balance	$32,800
Material Requisitioned	$23,000
Direct labor cost	$20,100
Overhead ($20,100 / $25 X $12.5)	$10,050
Closing balance	$85,950

3. Computation of Cost of goods sold for June

Particular	Job 39
Beginning balance	$26,100
Material Requisitioned	$16,000
Direct labor cost	$7,100
Overhead ($7,100 / $25 X $12.5)	$3,550
Closing balance	$52,750

4. Computation of Price charged for Job 39

$\begin{align*}\text{Price}&=\text{Cost of Goods Sold} \times\text{Margin}\\&=\$52,750\times 120\%\\&=\$63,300\end{align*}$

5. If the customer for job 40 was able to pay for the job by June 30, Then the balance of finished goods will decrease by $85,950 and the cost of goods sold will increase by $85,950.