Question

Question 5 (7 marks, suggested time 10 minutes) The following information was obtained from the job order cost system of Leonard Company for jobs worked on during September 2019: 2.150 Job Number Direct Materials Direct Labour Applied Overhead Total Cost 08.09 $264 5365 SS11 S1,140 08-12 172 2 40 336 09.01 365 520 728 11.613 09.02 2.180 1.825 2355 6.560 09-03 374 740 1016 1.820 980 09.05 R37 640 2.373 09.06 289 720 1.008 2017 09-07 351 470 658 1.479 09. 0 429 730 1.022 2 .181 09.09 454 620 952 2,086 09.04 896 Jobs 08-09 and 08-12 were started in August. All jobs were completed in September. All jobs except 09-06 and 09-08 were sold in September. Overhead is applied on the basis of direct labour cost using a predetermined rate. a) Calculate the conversion cost of Job 09-01 and put a box around your answer. (1 mark) b) Calculate the prime cost of Job 08-12 and put a box around your answer. (1 mark) c) Calculate the total cost of Job 09-04 and put a box around your answer. (2 marks) d) What is the cost of finished goods inventory at September 30? Please put a box around your answer. Please show the jobs included in finished goods inventory and explain your reasoning. (3 marks)

Answer 1

a) Conversion cost is the combination of direct labor costs and manufacturing overhead costs.

Therefore for Job 09-01,

Conversion cost = $520 + $728 = $1248

b) Prime cost is the direct cost of a commodity in terms of the materials and labor involved in its production, excluding fixed costs.

Therefore for Job 08-12,

Prime Cost = $172 + $240 = $412

c) Total cost refers to total cost of production.

Also given in the question that Overhead cost is applied on the basis of direct labor cost using a predetermined rate.

Predetermined rate(for Job 08-09) = $511/ $365 = 1.4

Predetermined rate(for Job 09-03) = $1036/ $740 = 1.4

Therefore, for Job 09-04,

Total overhead cost applied = $980 * 1.4 = $1372

Total cost = $1820 + $980 + $1372 = $4172

d) Since it is given in the question that all jobs were completed in the month of Sep which means that there was no work in progress and also it is given that all the jobs except 09-06 and 09-08 were sold. Thus the jobs included in the finished goods inventory would be Job 09-06 and 09-08.

Therefore the total cost of finished goods inventory would be = Total Cost of Job 09-06 + Total cost of Job 09-08 =$2017 + $2181 = $4198