Question

Job Costs Using a Plantwide Overhead Rate Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $280,000, and budgeted direct labor hours were 16,000. The average wage rate for direct labor is expected to be $35 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 $22,700 $35,500 $15,800 $1,700 Beginning balance Materials requisitioned Direct labor cost 20,100 21,000 10,300 15,600 11,200 18,100 4,950 6,500 Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 115 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 overhead rate based on direct labor cost. % of direct labor cost 2. Set up a simple job-order cost sheet for all jobs in process during June. Naranjo Company Job-Order Cost Sheets Job 39 Job 40 Job 41 Job 42 Balance, June 1 Total $ $ $ $
Job Costs Using a Plantwide Overhead Rate Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $280,000, and budgeted direct labor hours were 16,000. The average wage rate for direct labor is expected to be $35 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 $22,700 $35,500 $15,800 $1,700 Materials requisitioned 20,100 21,000 10,300 15,600 Direct labor cost 11,200 18,100 4,950 6,500 Overhead is assigned as a percentage of direct labor cost. During June, Jobs 39 and 40 were completed; Job 39 was sold at 115 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.

Answer 1

1	Overhead rate=Budgeted overhead/Budgeted direct labor cost
	Budgeted direct labor cost=Budgeted direct labor hours*Average wage rate=16000*35=$ 560000
	Overhead rate=280000/560000=0.50=50% of direct labor cost
2			Naranjo company
			Job-order cost sheets
					Job 39	Job 40	Job 41	Job 42
	Balance,june 1				22700	35500	15800	1700
	Materials requisitioned				20100	21000	10300	15600
	Direct labor cost			a	11200	18100	4950	6500
	Overhead applied			a*50%	5600	9050	2475	3250
	Total				59600	83650	33525	27050
3	New Budgeted direct labor cost=Budgeted direct labor hours*Average wage rate=16000*28=$ 448000
	New overhead rate=Budgeted overhead/Budgeted direct labor cost=280000/448000=0.625=62.5% of direct labor cost
	Cost of the jobs would be increased since overhead rate has increased from 50% to 62.5%