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Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead

Question:

Naranjo Company designs industrial prototypes for outside companies. Budgeted overhead for the year was $672,000 and budgeted direct labor hours were 28,000.

The average wage rate for direct labor is expected to be $40 per hour.

During June, Naranjo Company worked on four jobs.

Data relating to these four jobs follow:

Job 39Job 40Job 41Job 42
Beginning balance$25,800$34,600$20,000$2,000
Materials requisitioned17,70023,60011,50013,200
Direct labor cost8,80020,7006,1504,100

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 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)

Vince Melders, of EcoScape Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state.

Each job is different, requiring different materials and labor for installing the systems.

EcoScape estimated the following for the year:

Number of direct labor hours6,810
Direct labor cost$68,100
Overhead cost$50,394

During the year, the following actual amounts were experienced:

Number of direct labor hours6,180
Direct labor incurred$67,980
Overhead incurred$50,367

Required:

1. Should EcoScape use process costing or job-order costing?

2. If EcoScape uses a normal costing system and overhead is applied on the basis of direct labor hours, what is the overhead rate?

(Round your answer to the nearest cent)

What is the average actual wage rate?

What is the cost of an installation that takes $3,450 of direct materials and 30 direct labor hours?

Work in Process:

Work in process relates to inventory already issued into production but are not yet completed. Ending work in process is computed by adding beginning work in process and total manufacturing cost for the period less costs transferred to finished goods. Work in process accounts are only used in manufacturing companies.

Answer and Explanation:

Question 1:

Budgeted Overhead672,000
Divided by:Budgeted DL Hours28,000
Overhead Rate24
Job 39Job 40Job 41Job 42
Direct Labor Cost8,80020700,61504,100
Divided by:labor cost/hour40404040
Direct labor hours220517.5153.75102.5
Multiply by:Overhead Rate24242424
Overhead5,28012,4203,6902,460

1.

Job 41Job 42Total
Beg. Inventory20,0002,00022,000
Materials11,50013,20024,700
Labor6,1504,10010,250
Overhead3,6902,4606,150
Total WIP41,34021,76063,100

Balance in Work in Process as of June 30 is $63,100

2.

Job 40
Beg. Inventory34,600
Materials23,600
Labor20,700
Overhead12,420
Total Finished Goods91,320

Balance in Finished Goods as of June 30 is $91,320

3.

Job 39
Beg. Inventory25,800
Materials17,700
Labor8,800
Overhead5,280
Total Cost of goods sold57,580

Cost of goods sold for June is $57,580.

4.

Total Cost of goods sold57,580
Multiply by:Ratio115%
Sales/Price66,217

Price charged for Job 39 is $66,217.

Question 2:

1.

Yes. Job order costing is used in measuring heterogeneous products. These products often used different materials and labor as well as overhead thus, it just proper to account them per job.

2.

Overhead Cost50,394
Divided by:Direct labor hours6,180
Overhead Rate8.15436893203
Actual Overhead Costs50,367
Divided by:Direct labor hours6,180
Overhead Rate8.15
Actual Direct Labor Cost67,980
Divided by:Direct labor hours6,180
Overhead Rate11
DM3,450
Direct labor330
Overhead244.5
Installation Cost4,024.5
  • Direct Labor=11*30=330
  • Overhead=8.15*30=244.5

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