Question

Exercise 2-10 Applying Overhead Cost to a Job [LO2-2] Sigma Corporation applies overhead cost to jobs on the basis of direct labor cost. Job V, which was started and completed during the current period, shows charges of $6,700 for direct materials, $9,200 for direct labor, and $6,348 for overhead on its job cost sheet. Job W, which is still in process at year-end, shows charges of $3,700 for direct materials and $4,700 for direct labor. Required: 1a. Should any overhead cost be applied to Job W at year-end

Answer 1

Answer: Yes. The amount of $‭3,243‬ should be applied to Job W as overhead at year-end.

Explanation:

There should be overhead costs applied in Job W at year-end and this cost will be based on a predetermined overhead rate.

The Predetermined overhead rate can be calculated by dividing total estimated overhead cost by total estimated direct labor cost and is used to allocate manufacturing overhead for a period to products and other cost objects.

Predetermined rate using Job V = 6,348/9,200

= 69%

Overhead cost for Job W = Predetermined rate * Labor cost

= 69% * 4,700

= $‭3,243‬