Question

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	$1,500	$2,000	$850
Direct labor	1,900	1,200	900
Applied overhead	1,520	960	720

During August, four more jobs were started. Information on costs added to the seven jobs during the month is as follows:

	Job 70	Job 71	Job 72	Job 73	Job 74	Job 75	Job 76
Direct materials	$800	$1,235	$3,600	$5,000	$300	$560	$80
Direct labor	1,000	1,400	2,200	1,800	600	850	180

Before the end of August, Jobs 70, 72, 73, and 75 were completed. On August 31, Jobs 72 and 75 were sold.

Required:

1. Calculate the predetermined overhead rate based on direct labor cost.
% of direct labor cost.

2. Calculate the ending balance for each job as of August 31.

	Ending Balance
Job 70	$
Job 71	$
Job 72	$
Job 73	$
Job 74	$
Job 75	$
Job 76	$

3. Calculate the ending balance of Work in Process as of August 31.
$

4. Calculate the cost of goods sold for August.
$

5. Assuming that Cairle prices its jobs at cost plus 10 percent, calculate Cairle’s sales revenue for August.
$

Answer 1

	Job 70	Job 71	Job 72	Job 73	Job 74	Job 75	Job 76
Direct materials	$800	$1,235	$3,600	$5,000	$300	$560	$80
Direct labor	1,000	1,400	2,200	1,800	600	850	180
Applied overhead (80% of direct labor cost)	800	1,120	1,760	1,440	480	680	144
Total	$2,600	$3,755	$7,560	$8,240	$1,380	$2,090	$404

1.

Predetermined overhead rate = Applied overhead / Direct labor cost

Predetermined overhead rate = $3,200 (1,520+960+720) / $4,000 (1,900+1,200+900) = 80%

2.

Job	Beginning balance	+	Cost added during August	=	Ending balance
70	$4,920		$2,600		$7,520
71	4,160		3,755		7,915
72	2,470		7,560		10,030
73			8,240		8,240
74			1,380		1,380
75			2,090		2,090
76			404		404

3.

Ending balance of work in process = $7,915 (Job 71) + $1,380 (Job 74) + $404 (Job 76) = $9,699

4.

Cost of goods sold = $10,030 (Job 72) + $2,090 (Job 75) = $12,120

5.

Cairle's sales revenue = $12,120 + 10% = $13,332