The Bristol Company uses a job-order cost system. The following data were recorded for June:$\begin{array}{lrr}
& \text {June 1 } && \text {Added During June } \
&\text {Work in Process } & \text { Direct} & \text {Direct}\\\end{array}$
$\begin{array}{lrr}\text { Job Number} &\text { Stock }& \text { Materials }&\text { Labour }\
235 & £ 2,500 & £ 600 &£ 400 \
236 &£ 1,500 & £ 800 & £ 1,000 \
237 & £ 1,000 & £ 1,200 & £ 1,750 \
238 & £ 800 & £ 1,500 &£ 2,250
\end{array}$

In the previous question overhead is charged to production at 80% of direct materials cost. Jobs 235, 237, and 238 were completed during June and transferred to finished goods. Jobs 235 and 238 have been delivered to customers.
Assume that the company wants to recalculate the overhead rate and now wants to charge overhead to production at 75% of direct material cost. Bristol's Work in Process Stock balance on June 30 would change to:

A)£4,100.
B)£3,900.
C)£3,300.
D)£9,450.

Question

The Bristol Company uses a job-order cost system. The following data were recorded for June:$\begin{array}{lrr}
&  \text {June 1   } && \text {Added During June  } \
 &\text {Work in Process  } & \text { Direct} & \text {Direct}\\\end{array}$
$\begin{array}{lrr}\text { Job Number} &\text {  Stock }& \text { Materials }&\text { Labour }\
235 & £ 2,500  & £ 600  &£ 400  \
236 &£ 1,500 & £ 800  & £ 1,000  \
237 & £ 1,000 & £ 1,200 & £ 1,750 \
238 & £ 800 & £ 1,500 &£ 2,250 
\end{array}$

In the previous question overhead is charged to production at 80% of direct materials cost. Jobs 235, 237, and 238 were completed during June and transferred to finished goods. Jobs 235 and 238 have been delivered to customers.
Assume that the company wants to recalculate the overhead rate and now wants to charge overhead to production at 75% of direct material cost. Bristol's Work in Process Stock balance on June 30 would change to:

A)£4,100.
B)£3,900.
C)£3,300.
D)£9,450.

Quizplus · Accepted Answer

To calculate the new Work in Process (WIP) balance, we need to recalculate the overhead rate using the new percentage of 75% for direct material cost.

New Overhead Rate = 75% x £20,800 = £15,600

Now we can calculate the new amount of overhead applied to production for the three completed jobs:

Job 235: (£12,000 x 75%) = £9,000 applied overhead 
Job 237: (£7,200 x 75%) = £5,400 applied overhead 
Job 238: (£5,760 x 75%) = £4,320 applied overhead

Total applied overhead = £9,000 + £5,400 + £4,320 = £18,720

We can then calculate the new total cost for the three completed jobs:

Job 235: £12,000 + £9,600 = £21,600 
Job 237: £7,200 + £5,850 = £13,050 
Job 238: £5,760 + £4,560 = £10,320

Total cost of completed jobs = £21,600 + £13,050 + £10,320 = £45,970

Finally, we can calculate the new WIP balance by subtracting the cost of completed jobs and the applied overhead from the total manufacturing costs:

Total manufacturing costs = £20,800 + £23,600 + £19,200 = £63,600

New WIP balance = £63,600 - £45,970 - £18,720 = £910

Therefore, the new WIP balance on June 30 would be £3,900 (£910 higher than the original balance of £2,990).

The Bristol Company Uses a Job-Order Cost System In the Previous Question Overhead Is Charged to Production at Data