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 1,500,000 1,500,000
31 Direct labor cost 300,000 1,800,000
31 Overhead applied 600,000 2,400,000
31 To finished goods 2,350,000 50,000
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 $30,000. How much direct labor cost and overhead cost are assigned to this job?

Answer 1

Answer and Explanation:

The computation is shown below:

a. The predetermined overhead rate is

= Overhead applied ÷ direct material cost

= $600,000 ÷ $1,500,000

= 40%

2. The direct labor cost and the overhead cost assigned is

= Total cost in process - applied overhead - material cost

= $50,000 - ($30,000 × 0.40) - $30,000

= $8,000

Hence, the same would be considered