Montgomery, Inc., which uses a job-costing system, is a labour-intensive firm, with many skilled craftspeople on the payroll. Job no. 789 was the only job in process on January 1, having costs of $22,500 as of that date. Direct materials used and direct labour incurred during January were: $\begin{array} { l c r }
\text { Job No. } & \text { Direct Materials } & \text { Direct Labour } \
789 & \$ 2,000 & \$ 6,000 \
790 & 9,000 & 10,000 \
791 & 14,000 & 8,000
\end{array}$ Job no. 791 was the only job in production as of January 31.
Required:
A. Should Montgomery use direct labour or machine hours as a cost driver. Why?
B. Assume that the company decided to use direct labour as its cost driver. If the budgeted amounts of direct labour and manufacturing overhead are anticipated to be $200,000 and $300,000, respectively, what is the firm's predetermined overhead rate?
C. Compute the cost of work-in-process inventory as of January 31.
D. Compute the cost of jobs completed during January.
E. Suppose that the company sold all of its completed jobs, adding a 40% markup to cost. How much would the firm report as sales revenue?

Question

Montgomery, Inc., which uses a job-costing system, is a labour-intensive firm, with many skilled craftspeople on the payroll. Job no. 789 was the only job in process on January 1, having costs of $22,500 as of that date. Direct materials used and direct labour incurred during January were: $\begin{array} { l c r } 
\text { Job No. } & \text { Direct Materials } & \text { Direct Labour } \
789 & \$ 2,000 & \$ 6,000 \
790 & 9,000 & 10,000 \
791 & 14,000 & 8,000
\end{array}$ Job no. 791 was the only job in production as of January 31.
Required:
A. Should Montgomery use direct labour or machine hours as a cost driver. Why?
B. Assume that the company decided to use direct labour as its cost driver. If the budgeted amounts of direct labour and manufacturing overhead are anticipated to be $200,000 and $300,000, respectively, what is the firm's predetermined overhead rate?
C. Compute the cost of work-in-process inventory as of January 31.
D. Compute the cost of jobs completed during January.
E. Suppose that the company sold all of its completed jobs, adding a 40% markup to cost. How much would the firm report as sales revenue?

Quizplus · Accepted Answer

The Answer of Montgomery, Inc., which uses a job-costing system, is a labour-intensive firm, with many skilled craftspeople on the payroll. Job no. 789 was the only job in process on January 1, having costs of $22,500 as of that date. Direct materials used and direct labour incurred during January were: $\begin{array} { l c r } 
\text { Job No. } & \text { Direct Materials } & \text { Direct Labour } \
789 & \$ 2,000 & \$ 6,000 \
790 & 9,000 & 10,000 \
791 & 14,000 & 8,000
\end{array}$ Job no. 791 was the only job in production as of January 31.
Required:
A. Should Montgomery use direct labour or machine hours as a cost driver. Why?
B. Assume that the company decided to use direct labour as its cost driver. If the budgeted amounts of direct labour and manufacturing overhead are anticipated to be $200,000 and $300,000, respectively, what is the firm's predetermined overhead rate?
C. Compute the cost of work-in-process inventory as of January 31.
D. Compute the cost of jobs completed during January.
E. Suppose that the company sold all of its completed jobs, adding a 40% markup to cost. How much would the firm report as sales revenue?

Montgomery, Inc Job No 791 Was the Only Job in Production as of Firm