Question

Lorenzo Company uses a job order costing system that charges overhead to jobs on the basis of direct materials cost. At year-end, the Work in Process Inventory account shows the following.
Date Explanation Debit Credit Balance
2017
Dec. 31 Direct materials cost 1,800,000 1,800,000
31 Direct labor cost 250,000 2,050,000
31 Overhead applied 612,000 2,662,000
31 To finished goods 2,572,000 90,000

1. Determine the predetermined overhead rate used (based on direct materials cost).
2. Only one job remained in work in process inventory at December 31, 2017. Its direct materials cost is $27,000. How much direct labor cost and overhead cost are assigned to this job?

Answer 1

Answer:

a. Overhead Rate = 0.34

b. Direct Labour Cost = $53,820

Explanation:

a.

Overhead Rate based on direct materials is calculated as overhead cost/direct material cost

Overhead Cost = $612,000

Direct Materials Cost = $1,800,000

Overhead Rate = $612,000/$1,800,000

Overhead Rate = 0.34

b.

Given

Total cost of job in process = $90,000

Material Cost of job in process = $27,000

Overhead Applied = $9,180 (0.34% * $27,000)

Direct Labour Cost = Cost of job in process - Material Cost - Overhead Applied

Direct Labour Cost = $90,000 - $27,000 - $9,180

Direct Labour Cost = $53,820